There is a new blog on the blog, and one I'm watching with interested. Struggling Who is attempting to make the case for the so-called "strugglers" after another blogger made quite a splash making a case for the "Chumps."
Quite frankly, I have no interest in class warfare, even though it seems to be the hot topic of the week. What I do have an interest is seeing people prosper! Struggling Who comments, in regards to tuition discounts, states the schools tell us [those on discount] what to pay and what is left is for extra. Personally, I'd like to see the "extra" used to get ahead. Unfortunately, it seems that the "extra" is all too often used to fund increased consumption.
To make a case for the Strugglers, Struggling Who posts Yoni's budget. He doesn't want readers to pick it apart line by line, but it is really hard to ignore a budget of $6,900 that includes too much house ($2,761 mortgage payment, 40% of take home pay, granted that is after salary cuts), too much car ($625 in monthly payments bringing payments to 50% of take home pay) and too much food ($1,050 for food, including Shabbat).
I have consistently found that the difference between those who prosper and those who struggle has less to do with income, and more to do with spending habits. It breaks my heart to see families that could be comfortable or even prospering, struggling because they didn't get ahead when they could have. Let me demonstrate by using Yoni's own budget.
Yoni spends $1050 on food per month for a household of 5, including 2 school aged children and a pre-schooler (my assessment from the description). Anyway you cut it, $1050 is a lot of money to spend on food. Let's say that Yoni decides to really attack this line item of the budget and through a combination of different eating and shopping habits, lower the food line item to a still generous $650.
For the next 3 years, the $400 difference is locked into a savings account called "car." In three years, Yoni will have $14,400, a rather generous amount, which he can now turn around and spend on a quality (used) van, eliminating another massive line item, the $625 in lease and car payments (presumably the car payments will be complete, or almost complete in 3 years and the now owned car will be ready to drive into the ground).
Should Yoni continue to manage the grocery budget ($400) and eliminate the car payments ($625), there is now over $1000 extra to work with.
Now, Yoni and others like Yoni are fighting an uphill battle as school aged children are already in the picture and it still remains a mystery to me how scholarship committees come to a decision as to how tuition is charged. But, those who are starting out should take note. Controlling costs, even without high salaries, can and will result in real savings. Savings work for you. Debt works against you.
Showing posts with label Saving. Show all posts
Showing posts with label Saving. Show all posts
Monday, November 08, 2010
Monday, June 07, 2010
Dear Orthonomics: When do you use your savings?
Dear Orthonomics,
Here's my financial situation. I'm married with 3 kids, expecting a 4th, live in a high tuition area and have two in school. The third is starting school next year. We have a combined income in the low $100Ks, I work full time, wife works part time, and her salary goes mostly to babysitting and taxes. After taxes, babysitting and commuting, there's barely anything left. She works primarily to keep her job for when all kids are in school (and she can work without paying a babysitter).
Now my question:We have been managing up until now, because we have a small mortgage, live very frugally, and basically spend NO money on non-essentials (read vacation, entertainment, trips, toys). The yeshiva gives us small tuition breaks, and up until now, we've been getting by.
With a third tuition next year, I project that our expenses will now surpass our income by several thousand dollars a year. Tuition burden will be approximately 30% of income. We have a nice amount in savings (expenses for about one year) but don't really add much to it, and starting in September, will add nothing to it unless we get a windfall.
It is reasonable for a yeshiva, or reasonable practice in general, to use savings to make up the difference in living expenses year and year?
My firm belief is NO. I consider yeshiva a living expense, and all living expenses should be covered by income. If income doesn't cover it, you can't afford it. Savings, in my opinion, is either for emergencies or special purchases that one saves for (car, house, smachot, etc.).
Am I living in a dream world, thinking that a savings account is sacred or is there is a reasonable expectation that savings are to be used to cover shortfalls in income? The danger, of course, is that expenses rise year after year faster than salaries do, so after enough years of doing this, savings will be depleted with no hope of recovery, and then there's no way to cover expenses either.
Please weigh in. Thanks!
Y. Doe
Dear Mr. Doe,
First off, wishing you a ba'shaa tova on your good news.
I am not going to address whether a Yeshiva asking a family to spend down their savings before receiving assistance is reasonable. Each yeshiva/day school is free to set its own policies regarding tuition assistance and schools have to worry about their bottom line, as do parents. In the long run, I think healthy finances for organizations and families go hand-in-hand. But most of our organizations simply aren't in the long-term macro planning mode. So instead of debating that question, I think it more important to address questions pertaining to familial finance.
Like you, I consider savings sacrosanct and believe that in all but emergency situations, savings are not there to cover day-to-day expenses but to carry a family over when there is an unplanned (but temporary) emergency, one-time purchases of big ticket items, and long term prosperity. Some have to budget their cash by the week or month, others in periods of 3 or 6 months. Whatever your time frame, if you cannot meet regular expenses with regular income (i.e. earned income) you have a developing issue.
Your instincts are perfectly correct when you state that tuition really should be met by a regular budget, not savings. I think tuition is a bit of a confusing issue for people. After all, don't regular Joe's spend 18 years saving for each child's college tuition and then dip into savings to cover that tuition? Yes, they do. They also have a small number of children and only expect to pay college tuition for a small amount of time. But Yeshiva tuition falls into a different category for the average Orthodox family. The years of paying tuition extend for large periods of time and for a large number of children, thereby pushing them into the "day-to-day" category.
Since you mentioned savings for smachot, I think we should take a brief look at this category of expense. Particularly, when must these expenses be covered by regular income and when can they be covered by savings? Here I think there are two factors to consider: 1) what is the occasion of the simcha? and 2) what is the family dynamic?
I'm going to differentiate between the "bar" and the "mitzvah". If a baby boy is born and the family simply doesn't have the cash from regular income to cover the basics of a brit milah (i.e. paying the mohel to perform the circumcision and serving a minimal seudah), then it will be necessary to turn towards savings. A circumcision is a must and it must be paid for. Same would go towards purchasing a pair of tefillin for a bar mitzvah boy (although I imagine one could borrow tefillin from a shul or gemach in a particularly dire situation, but I'm not really addressing a dire situations). With the exception of mitzvah purchases, I'd say that the rest of the simcha and its cost and how it is funded will vary depending on the family dynamic.
Within the Orthodox community we have families of different sizes, as well as differences in income. Those factors, and family size plays in heavily, will play into how a family living on a budget approaches budgeting for smachot. Above we considered some factors that make an expense a regular day-to-day expense or an irregular expense for which touching savings unreasonable.
A nerdy person might create an average simcha frequency by projecting the amount of time one has to save between the birth of a first child and the approximate date of the final simcha divided by the number of large smachot they need to plan for (if you only plan to throw a slightly nicer kiddush for a bar mitzvah, you might not need to calculate simcha into your projected frequency ). I would say that if the average simcha frequency is 2 years or less, what you spend on smachot would best come from current cash flow. If the simcha frequency mirrors the period between buying the next family vehicle, it wouldn't be completely unreasonable to dip into savings. If you are in between both frequencies, a hybrid approach could be a reasonable "rule of thumb" approach, but the lower the frequency, the more imperative it would be to avoid dipping into savings as part to maintain healthy personal finance. Like you mention with tuition, regular expenses cannot drain a family to the point they can't recover. I mention smachot because these too, can drain a family and put them past the point of no recovery.
The letter writer is looking forward to reader comments knowing that their family situation is not unique. I'm sure my readers will deliver.
With only good wishes for your family and your new edition which you can "afford" although I'm not sure you can afford tuition at this point and may have to think out of the box (you are not alone there!).
Orthonomics
Here's my financial situation. I'm married with 3 kids, expecting a 4th, live in a high tuition area and have two in school. The third is starting school next year. We have a combined income in the low $100Ks, I work full time, wife works part time, and her salary goes mostly to babysitting and taxes. After taxes, babysitting and commuting, there's barely anything left. She works primarily to keep her job for when all kids are in school (and she can work without paying a babysitter).
Now my question:We have been managing up until now, because we have a small mortgage, live very frugally, and basically spend NO money on non-essentials (read vacation, entertainment, trips, toys). The yeshiva gives us small tuition breaks, and up until now, we've been getting by.
With a third tuition next year, I project that our expenses will now surpass our income by several thousand dollars a year. Tuition burden will be approximately 30% of income. We have a nice amount in savings (expenses for about one year) but don't really add much to it, and starting in September, will add nothing to it unless we get a windfall.
It is reasonable for a yeshiva, or reasonable practice in general, to use savings to make up the difference in living expenses year and year?
My firm belief is NO. I consider yeshiva a living expense, and all living expenses should be covered by income. If income doesn't cover it, you can't afford it. Savings, in my opinion, is either for emergencies or special purchases that one saves for (car, house, smachot, etc.).
Am I living in a dream world, thinking that a savings account is sacred or is there is a reasonable expectation that savings are to be used to cover shortfalls in income? The danger, of course, is that expenses rise year after year faster than salaries do, so after enough years of doing this, savings will be depleted with no hope of recovery, and then there's no way to cover expenses either.
Please weigh in. Thanks!
Y. Doe
Dear Mr. Doe,
First off, wishing you a ba'shaa tova on your good news.
I am not going to address whether a Yeshiva asking a family to spend down their savings before receiving assistance is reasonable. Each yeshiva/day school is free to set its own policies regarding tuition assistance and schools have to worry about their bottom line, as do parents. In the long run, I think healthy finances for organizations and families go hand-in-hand. But most of our organizations simply aren't in the long-term macro planning mode. So instead of debating that question, I think it more important to address questions pertaining to familial finance.
Like you, I consider savings sacrosanct and believe that in all but emergency situations, savings are not there to cover day-to-day expenses but to carry a family over when there is an unplanned (but temporary) emergency, one-time purchases of big ticket items, and long term prosperity. Some have to budget their cash by the week or month, others in periods of 3 or 6 months. Whatever your time frame, if you cannot meet regular expenses with regular income (i.e. earned income) you have a developing issue.
Your instincts are perfectly correct when you state that tuition really should be met by a regular budget, not savings. I think tuition is a bit of a confusing issue for people. After all, don't regular Joe's spend 18 years saving for each child's college tuition and then dip into savings to cover that tuition? Yes, they do. They also have a small number of children and only expect to pay college tuition for a small amount of time. But Yeshiva tuition falls into a different category for the average Orthodox family. The years of paying tuition extend for large periods of time and for a large number of children, thereby pushing them into the "day-to-day" category.
Since you mentioned savings for smachot, I think we should take a brief look at this category of expense. Particularly, when must these expenses be covered by regular income and when can they be covered by savings? Here I think there are two factors to consider: 1) what is the occasion of the simcha? and 2) what is the family dynamic?
I'm going to differentiate between the "bar" and the "mitzvah". If a baby boy is born and the family simply doesn't have the cash from regular income to cover the basics of a brit milah (i.e. paying the mohel to perform the circumcision and serving a minimal seudah), then it will be necessary to turn towards savings. A circumcision is a must and it must be paid for. Same would go towards purchasing a pair of tefillin for a bar mitzvah boy (although I imagine one could borrow tefillin from a shul or gemach in a particularly dire situation, but I'm not really addressing a dire situations). With the exception of mitzvah purchases, I'd say that the rest of the simcha and its cost and how it is funded will vary depending on the family dynamic.
Within the Orthodox community we have families of different sizes, as well as differences in income. Those factors, and family size plays in heavily, will play into how a family living on a budget approaches budgeting for smachot. Above we considered some factors that make an expense a regular day-to-day expense or an irregular expense for which touching savings unreasonable.
A nerdy person might create an average simcha frequency by projecting the amount of time one has to save between the birth of a first child and the approximate date of the final simcha divided by the number of large smachot they need to plan for (if you only plan to throw a slightly nicer kiddush for a bar mitzvah, you might not need to calculate simcha into your projected frequency ). I would say that if the average simcha frequency is 2 years or less, what you spend on smachot would best come from current cash flow. If the simcha frequency mirrors the period between buying the next family vehicle, it wouldn't be completely unreasonable to dip into savings. If you are in between both frequencies, a hybrid approach could be a reasonable "rule of thumb" approach, but the lower the frequency, the more imperative it would be to avoid dipping into savings as part to maintain healthy personal finance. Like you mention with tuition, regular expenses cannot drain a family to the point they can't recover. I mention smachot because these too, can drain a family and put them past the point of no recovery.
The letter writer is looking forward to reader comments knowing that their family situation is not unique. I'm sure my readers will deliver.
With only good wishes for your family and your new edition which you can "afford" although I'm not sure you can afford tuition at this point and may have to think out of the box (you are not alone there!).
Orthonomics
Tuesday, January 12, 2010
Some Personal Thoughts on Tuition, Family, and More
I have been blown away by the number of comments that my post "Private School or Bust" engendered. The subject of the post was about the decision to grow the family to a bit beyond replacement level vs. tuition. Most comments that came in were from Bergen County residents who are definitely feeling stretched to their limits and I think the subject veered a bit off topic. I'm going to attempt to share some personal thoughts on the subject of growing a small family just a tab bit, although I realize that I am going to open myself up to plenty of criticism.
Honestly Frum has picked up where the discussion on my blog left off and I've just been sitting back and watching the show. The anger is present and I have no idea how that anger will be translated (or not), but I do hope that it is translated into productive solutions because the feelings are quite destructive in my opinion. For some ideas that have already been declared "impossible", please check out the post on the Flordia co-op school which will be expanding to serve lower elementary school students, the Los Angeles alternative Yeshiva program, Hybrid Schools, and homeschooling. These ideas might not be at all possible for everyone. But individual decisions are where those who want to relieve themselves of a massive burden need to start. I see no signs of major change coming this way for the year 2010/11. I have heard through the grapevine that the schools where I am are planning to raise tuition. If this is true, and I imagine it is because the funding structure ingrained and is what it is, then parents can either write a check or explore other options. If most parents re-register their children in the coming months, the schools will lack the incentive to be the innovators.
So long as it is a nearly foregone conclusion in my mind that I am going to have to seek alternatives to day school education, I don't see it wise to worship at that altar, basing nearly all of our decisions around something that is likely unobtainable in the long term. While some families might be willing to forgo bringing child #2, 3, or 4 into this world because of Yeshiva tuition, I am not going to choose that path. I will never have a super-sized family for a myriad of reasons, but I believe that halacha does not leave family planning decisions completely at our discretion. And, quite frankly, I love being a mother, it is the most fulfilling job I have ever had, it makes us better people, it gives us great purpose, and it enhances our marriage and our spiritual life. If I were to perform a risk analysis, I think I'd rather have that next child and figure out how to best give our kids a Jewish education outside of the system, then to curtail growing our family only to find out that, in the end, day school/yeshiva is still out of reach and we sacrificed our family for something we couldn't have anyway.
Some will say that young families should do everything possible to achieve a day school education. Some will say that they should exhaust their savings and then go into debt. Let's face it, most young people already are maxxed out, so schools are simply going to have to deal with this factor as it hits them harder than ever. This generation is carrying a lot of debt (much in the form of student loan debt) and are paying twice for tuition. I have no intention of draining savings or taking on debt. If that makes me a bad person, so be it. I refuse to live beyond our means. It sets a terrible precedent (if this precedent wasn't set, perhaps we wouldn't even be having tuition discussions today). Compounding interest either works for or against you. Exhausting savings is the quick way to disaster. Going into debt is a bad idea for anyone in the management or financial fields. Living on the edge, quite frankly, endangers integrity.
Others will say that young people should turn to their parents for money. Asking our parents for money isn't an option, even if they surprise us by forking over their checkbooks. It isn't just a matter of being "too proud." Quite frankly, I'm not sure that they have enough for their needs. We need to be prepared for this possibility, not spend all of our money and then some of theirs. If, after 120, we find there is something left over, that is great.
Others will say to ask for a scholarship. While I do believe the scholarship committees do take great precaution with sensitive information, I think it a bad practice to put financial data out there. I am not the bargaining type. I'm not the threatening type. If the price on the free market is reasonable for our family, we will pay up. We have done our hishtadlut to get ahead and if the price is still out of reach, I don't see myself throwing a "tea party" in the school parking lot.
We happily forgo the cell phone, eat rice and beans, shop in a very cost effective way, shop in thrift stores, drive paid for used cars, and don't take vacations for which we can't bunk up at a relative's home. We had a reasonably priced wedding (could have been lower), haven't taken on student debt, and don't send our kids to camp. I work at strange hours and don't pay for daycare or camp. I've organized co-operatives for babysitting, etc. If these "sacrifices" don't pay for day school, then so be it. If day school was priced like the many Christian and Catholic schools available, we would figure it out. But it isn't.
There is always plenty of room to criticize. Some might say that if I hadn't left my job to freelance from home so I could raise my children, I could be a manager and with tens of thousands left over to pay for tuition. Some might say that if my husband would take an even higher paying job (more hours, more risk) that paying for day school for a small family wouldn't be a problem. Some might say that if we stayed in a 2-bedroom apartment that we would be able to meet these massive tuition hikes. Some might say that if we picked up and moved to a less expensive area that we would be perfectly fine. But the job is here and I tend to deal with what is, rather than what if.
And perhaps they are right! But I'm not going to make apologies for the decisions we have made, nor am I going to apologize if Hashem blesses us with one more child. We made our decisions based on what we believe is best for our family and for our children. We have lived frugally. We are paying full tuition for the time being. And we have given tzedakah (in the past) to the schools in our area. If steady, well paying jobs, living below our means, and a frugal lifestyle doesn't leave many tens of thousands of dollars left over for day school tuition, then I believe we will simply seek alternatives.
I don't see any good purpose is making day school the be all and end all of our existence. I don't want to become a bitter person, mad at those who have made less than "optimal" decisions. I don't want to harbor anger at the very people I charge to educate my children. I'm willing to continue to seek more opportunities to increase the cash available for tuition, but I'm not willing to take a risk to family life for the sake of tuition that we might never be able to pay anyways in 5-10 years, another child or not.
Yes, I prefer to go quietly in the night. There are plenty of things that could be explored and I believe I will play a roll in exploring some of those possibilities. But, what I see from "establishment" is a 10 foot list of reasons why everything is impossible and I know that any alternatives will have to come from the grassroots (who will likely eat the blame in the end anyways).
Fire away! (Wow, the post sounds a bit more bitter than I would like it too. That wasn't intentional because as I make peace with the situation we will face, I am releasing a lot of animosity I might have had pent up inside).
I have been blown away by the number of comments that my post "Private School or Bust" engendered. The subject of the post was about the decision to grow the family to a bit beyond replacement level vs. tuition. Most comments that came in were from Bergen County residents who are definitely feeling stretched to their limits and I think the subject veered a bit off topic. I'm going to attempt to share some personal thoughts on the subject of growing a small family just a tab bit, although I realize that I am going to open myself up to plenty of criticism.
Honestly Frum has picked up where the discussion on my blog left off and I've just been sitting back and watching the show. The anger is present and I have no idea how that anger will be translated (or not), but I do hope that it is translated into productive solutions because the feelings are quite destructive in my opinion. For some ideas that have already been declared "impossible", please check out the post on the Flordia co-op school which will be expanding to serve lower elementary school students, the Los Angeles alternative Yeshiva program, Hybrid Schools, and homeschooling. These ideas might not be at all possible for everyone. But individual decisions are where those who want to relieve themselves of a massive burden need to start. I see no signs of major change coming this way for the year 2010/11. I have heard through the grapevine that the schools where I am are planning to raise tuition. If this is true, and I imagine it is because the funding structure ingrained and is what it is, then parents can either write a check or explore other options. If most parents re-register their children in the coming months, the schools will lack the incentive to be the innovators.
Back to my subject. . . .
Reading the comments has been revealing and has helped me clarify some of my own thoughts vis a vis my relationship to private schooling. While having the option of sending our already small family to day school is an option that I wish were sustainable over the long haul, I don't believe it is sustainable in the long term. In the short term, I have every intention of making it happen because we are quite pleased with our school, but I have been tracking tuitions in the main games in town and tuition has consistently increased been increased between 5 and 7% every year. Every year I say that there is no way that tuition will increase at the established average, and every year I am sadly proven wrong. Tuition is increased, and my estimate is within a hundred dollars give of take. I have no doubt that in the next 5 years, elementary tuition will be hovering around $20K and that high school tuition will near the $30K mark. Unless the current funding structure is completely overturned and other major changes implemented, I don't see a way to turn back the clock.So long as it is a nearly foregone conclusion in my mind that I am going to have to seek alternatives to day school education, I don't see it wise to worship at that altar, basing nearly all of our decisions around something that is likely unobtainable in the long term. While some families might be willing to forgo bringing child #2, 3, or 4 into this world because of Yeshiva tuition, I am not going to choose that path. I will never have a super-sized family for a myriad of reasons, but I believe that halacha does not leave family planning decisions completely at our discretion. And, quite frankly, I love being a mother, it is the most fulfilling job I have ever had, it makes us better people, it gives us great purpose, and it enhances our marriage and our spiritual life. If I were to perform a risk analysis, I think I'd rather have that next child and figure out how to best give our kids a Jewish education outside of the system, then to curtail growing our family only to find out that, in the end, day school/yeshiva is still out of reach and we sacrificed our family for something we couldn't have anyway.
Some will say that young families should do everything possible to achieve a day school education. Some will say that they should exhaust their savings and then go into debt. Let's face it, most young people already are maxxed out, so schools are simply going to have to deal with this factor as it hits them harder than ever. This generation is carrying a lot of debt (much in the form of student loan debt) and are paying twice for tuition. I have no intention of draining savings or taking on debt. If that makes me a bad person, so be it. I refuse to live beyond our means. It sets a terrible precedent (if this precedent wasn't set, perhaps we wouldn't even be having tuition discussions today). Compounding interest either works for or against you. Exhausting savings is the quick way to disaster. Going into debt is a bad idea for anyone in the management or financial fields. Living on the edge, quite frankly, endangers integrity.
Others will say that young people should turn to their parents for money. Asking our parents for money isn't an option, even if they surprise us by forking over their checkbooks. It isn't just a matter of being "too proud." Quite frankly, I'm not sure that they have enough for their needs. We need to be prepared for this possibility, not spend all of our money and then some of theirs. If, after 120, we find there is something left over, that is great.
Others will say to ask for a scholarship. While I do believe the scholarship committees do take great precaution with sensitive information, I think it a bad practice to put financial data out there. I am not the bargaining type. I'm not the threatening type. If the price on the free market is reasonable for our family, we will pay up. We have done our hishtadlut to get ahead and if the price is still out of reach, I don't see myself throwing a "tea party" in the school parking lot.
We happily forgo the cell phone, eat rice and beans, shop in a very cost effective way, shop in thrift stores, drive paid for used cars, and don't take vacations for which we can't bunk up at a relative's home. We had a reasonably priced wedding (could have been lower), haven't taken on student debt, and don't send our kids to camp. I work at strange hours and don't pay for daycare or camp. I've organized co-operatives for babysitting, etc. If these "sacrifices" don't pay for day school, then so be it. If day school was priced like the many Christian and Catholic schools available, we would figure it out. But it isn't.
There is always plenty of room to criticize. Some might say that if I hadn't left my job to freelance from home so I could raise my children, I could be a manager and with tens of thousands left over to pay for tuition. Some might say that if my husband would take an even higher paying job (more hours, more risk) that paying for day school for a small family wouldn't be a problem. Some might say that if we stayed in a 2-bedroom apartment that we would be able to meet these massive tuition hikes. Some might say that if we picked up and moved to a less expensive area that we would be perfectly fine. But the job is here and I tend to deal with what is, rather than what if.
And perhaps they are right! But I'm not going to make apologies for the decisions we have made, nor am I going to apologize if Hashem blesses us with one more child. We made our decisions based on what we believe is best for our family and for our children. We have lived frugally. We are paying full tuition for the time being. And we have given tzedakah (in the past) to the schools in our area. If steady, well paying jobs, living below our means, and a frugal lifestyle doesn't leave many tens of thousands of dollars left over for day school tuition, then I believe we will simply seek alternatives.
I don't see any good purpose is making day school the be all and end all of our existence. I don't want to become a bitter person, mad at those who have made less than "optimal" decisions. I don't want to harbor anger at the very people I charge to educate my children. I'm willing to continue to seek more opportunities to increase the cash available for tuition, but I'm not willing to take a risk to family life for the sake of tuition that we might never be able to pay anyways in 5-10 years, another child or not.
Yes, I prefer to go quietly in the night. There are plenty of things that could be explored and I believe I will play a roll in exploring some of those possibilities. But, what I see from "establishment" is a 10 foot list of reasons why everything is impossible and I know that any alternatives will have to come from the grassroots (who will likely eat the blame in the end anyways).
Fire away! (Wow, the post sounds a bit more bitter than I would like it too. That wasn't intentional because as I make peace with the situation we will face, I am releasing a lot of animosity I might have had pent up inside).
Saturday, December 19, 2009
Incentive
Parshat Miketz offers tried and true savings advice recalling that the grain, during the years of plenty, was collected hand over hand, or in the interpretation of some little by little. Often people through up their hands and proclaim why bother savings as it is impossible to do so anyways with all of the numerous bills, etc.
What they haven't quite comprehended is the power or addition in conjunction with the miracle of compounding interest. There were periods of time when we were able to save money in major lump sums, or what I like to call before tuition or BT. Those days have seemingly passed. But, we are still able to see satisfying changes in financial position for the positive despite no longer being able to save the amounts of the past.
Just a few weeks ago I received my statement from my first 401k from my first job. There is something extremely satisfying about seeing that percentage of investment income earned is about to surpass the amount of money invested. I wish I understood this more clearly when I started this first retirement account. If I could go back in time, I would have invested more pre-tax income. At the time I lacked some incentive.
Speaking of incentive and the parsha, I think there is an important lesson to learn. From a basic reading of the text (I'm ignoring commentaries to the contrary so as to not loose my point), Yosef enacted a one-fifth (20%) tax rate on gross domestic product during the seven years of plenty and the land produced an abundance. He also stored the grains within close proximity of the taxed. Economic theory tells us that overtaxing decreases production, so I think we can reasonably conclude that the tax rate enacted by Yosef was not draconian.
When it comes to yeshiva tuition and tuition assistance, many would like to see parents take on more employment, higher paying jobs, more jobs, etc. It is fantastic that so many parents view tuition as their duty and will go to all lengths to avoid scholarships. But, others simply won't; the incentive is simply not there.
Should schools want to see parents who are on scholarship pay more tuition by increasing their incomes, they need to understand the underpinnings of incentive. If those on tuition assistance believe that if they change their earning situation that the school will nab 100% of the new earnings, they are unlikely to take on additional employment without heavy handed techniques that provide incentive through fear. But, if you only take a smaller amount of the new income and most of the new income can be used at the discretion of the earner, the incentive to earn is kept intact.
Of course, what makes economic sense might not be great school policy. I'm not quite sure how practical it would be to enact a tax on additional income of mothers that return to work, for example, while dual income families are charged tuition at a different rate. There are already plenty of hard feelings on all sides. And speaking of practical, schools really shouldn't be playing big brother any more than they already do. Additionally, when the marginal governmental tax rates (social security + medicare + the marginal federal rate + the marginal state rate) already takes up nearly a third of the income to say nothing of the costs of transport, childcare, and non-tangibles such as decreased family time and stress, there isn't much left for anyone else to grab.
Just some thoughts for this evening. A shavua tov.
Parshat Miketz offers tried and true savings advice recalling that the grain, during the years of plenty, was collected hand over hand, or in the interpretation of some little by little. Often people through up their hands and proclaim why bother savings as it is impossible to do so anyways with all of the numerous bills, etc.
What they haven't quite comprehended is the power or addition in conjunction with the miracle of compounding interest. There were periods of time when we were able to save money in major lump sums, or what I like to call before tuition or BT. Those days have seemingly passed. But, we are still able to see satisfying changes in financial position for the positive despite no longer being able to save the amounts of the past.
Just a few weeks ago I received my statement from my first 401k from my first job. There is something extremely satisfying about seeing that percentage of investment income earned is about to surpass the amount of money invested. I wish I understood this more clearly when I started this first retirement account. If I could go back in time, I would have invested more pre-tax income. At the time I lacked some incentive.
Speaking of incentive and the parsha, I think there is an important lesson to learn. From a basic reading of the text (I'm ignoring commentaries to the contrary so as to not loose my point), Yosef enacted a one-fifth (20%) tax rate on gross domestic product during the seven years of plenty and the land produced an abundance. He also stored the grains within close proximity of the taxed. Economic theory tells us that overtaxing decreases production, so I think we can reasonably conclude that the tax rate enacted by Yosef was not draconian.
When it comes to yeshiva tuition and tuition assistance, many would like to see parents take on more employment, higher paying jobs, more jobs, etc. It is fantastic that so many parents view tuition as their duty and will go to all lengths to avoid scholarships. But, others simply won't; the incentive is simply not there.
Should schools want to see parents who are on scholarship pay more tuition by increasing their incomes, they need to understand the underpinnings of incentive. If those on tuition assistance believe that if they change their earning situation that the school will nab 100% of the new earnings, they are unlikely to take on additional employment without heavy handed techniques that provide incentive through fear. But, if you only take a smaller amount of the new income and most of the new income can be used at the discretion of the earner, the incentive to earn is kept intact.
Of course, what makes economic sense might not be great school policy. I'm not quite sure how practical it would be to enact a tax on additional income of mothers that return to work, for example, while dual income families are charged tuition at a different rate. There are already plenty of hard feelings on all sides. And speaking of practical, schools really shouldn't be playing big brother any more than they already do. Additionally, when the marginal governmental tax rates (social security + medicare + the marginal federal rate + the marginal state rate) already takes up nearly a third of the income to say nothing of the costs of transport, childcare, and non-tangibles such as decreased family time and stress, there isn't much left for anyone else to grab.
Just some thoughts for this evening. A shavua tov.
Monday, August 31, 2009
Ask Orthonomics: Reader Asks For Insight and Essentially An Intro To This Blog
This week's question comes from a reader that writes the following:
Hi SL -
I'd like to ask your insight on 3 related items:
1 - do you have a Top 10 list of your articles from your Orthonomics blog on how to save & thrive within the Orthonomics model?
Sadly my blog is not yet well organized (perhaps if we get snowed in, I can rectify that). But I have shared many of my own rules of the road as well as tips. Here are some of posts that might be of interest:
creating virtual learning for frum schools as is currently being done for secular colleges and other professional online training.
community limits on simcha spending
a paid service plan like insurance that pays for chasonnas
communities working together to cook for simchas.
Virtual Learning
As far as I know there are entrepreneurs looking to develop virtual learning. I was even fortunate enough to have a guest poster write about Virtual Schooling. Room 613 (sorry I can't remember the web address) is one that I have heard of geared towards frum students. While I try to use my little 'soap box' to look at education alternatives from homeschooling, to hybrid schooling, or alternative schedules (the four day schedule continues to grow on me) as well as news out of public schools, I don't see myself jumping on the virtual learning bandwagon quite yet, but I do believe there is a lot of potential. But this comes from someone who doesn't believe calculators should be used until algebra, and then only a basic 4-function. I'm not a technophobe, but a personal connection to the educator still is a basic for me.
Spending Limits on Smachot
Regarding community spending limit on smachot, I think the plans have helped somewhat, but they aren't very effective. The Agudah put foward some standards in the early part of this decade, but it is hard to take the standards seriously when a disclaimer was offered that the standards would not apply in "exceptional circumstances." The vort, which was supposed to be eliminated, continues to grow in popularity. And, I haven't been to any "normal" weddings where the sisters of the chatan and kallah were not wearing ballroom gowns.
Different Chassidish communities have been experimenting with takanot and, quite frankly, what is laid out in stone is still ridiculously expensive even though the kehilla, unlike those the Agudah targets, are bound to listen. Helping shave costs is important, but when incomes don't cover the expenses, I'm afraid it is time to switch to the "Cake and Punch" option.
And the emphasis on gift-giving (despite the laundry list of mandatory "gifts" being trimmed) is still ridiculously expensive. Furthermore, while I realize that the dating cycle of the modern Orthodox young lady and her Chassidish counterpart are worlds apart, I question the emphasis on gift giving the the yeshivish and Chassidish worlds. I believe that the amount of money spend on gifts is not only terribly expensive and unjust to those without the means, but that it disconnects a the young couple from the reality that is about to hit them when they get married.
The Belz community has decided that interest free loans to the tune of $25,000 for each mechutan is the way to go. I counter that a plan that starts with debt isn't much of a plan at all, even if the massive amount of debt is easier to dig out of because it is interest free. Plus, the gemach fund should be just about all but broke now.
If I were writing a wedding takana it would simply be no loans, not against the house, not against the 401k, and certainly not against the credit card. Once you are dealing with cash, it is an entirely different beast. Bring on the lox and bagels!
Communities working together to cook for simchas
A Reader
This week's question comes from a reader that writes the following:
Hi SL -
I'd like to ask your insight on 3 related items:
1 - do you have a Top 10 list of your articles from your Orthonomics blog on how to save & thrive within the Orthonomics model?
Sadly my blog is not yet well organized (perhaps if we get snowed in, I can rectify that). But I have shared many of my own rules of the road as well as tips. Here are some of posts that might be of interest:
- Camping, Playgroups, Babysitting: My friend "A Mother In Israel" wrote a Guest Post for me on organizing a co-op camp for children. The same ideas can be extended to work low cost pre-school cooperatives. And formal and informal round robins can be used to help cut down on babysitting expenses for times when you need a babysitting (weddings, dentist and doctor appointments, etc). The key is to find friends willing to give these alternatives a try.
- New to You Shopping, i.e. buying used at garage sales, consignment stores, and thrift stores, has not only cut our expenses, but has also put my kids in "better" clothing than what we would normally purchase. I love inverse relationships!
- Pesach for many means overspending, but that doesn't have to be the case. Pesach is a holiday of freedom, so becoming a slave to Mastercard certainly makes no sense. Here are tips from year past: 2006, 2007, and 2009.
- Weddings and any other smachot don't Need to break the bank by design either. One Guest Poster writes about her super-frugal wedding. Here is what we did to keep our wedding under control. I personally think the overspending on weddings is a HUGE issue and if just this one issue could be tackled it would go a long way towards improving "The State of the Union"; shidduchim, shalom bayit, financial issues.. . you name it and the hub practically revolves around the issue of killing ourselves over a one night, 5 hour affair. Ludicrous!
- Organizing Cost Effective Grocery Shopping is how we save thousands of dollars a year. Some people love Costco, but I'm apprehensive. I think that good menu planning and shopping the circulars is key. Some don't care to talk about the small numbers, but I am thoroughly convinced that a decade of smart grocery shopping has contributed tremendously to our bottom line.
- But, if you like to focus on the big, try Too Much Too Soon which looks at the hidden costs of too much stuff, too much car, too much house, and too many services (yes, I do dare to suggest the cost cutting measure of trying to get away with less services including, but not limited to, cleaning help). In another post I pointed out that a Yated letter writer's budget was not being crushed by tuition, but by the biggies including a huge mortgage and the utilities that go along with it, camp and going to a bungalow colony, and cleaning help amongst other ridiculously large expenses.
- Of course, cutting down on peer pressure while choosing to live within your means isn't easy when "everyone" else is spending like there is no tomorrow. I think mitigating peer pressure is important.
- Budgeting is key. There are lots of great budgeting software out there. I personally track everything on good 'ol Microsoft Excel which is not particularly the most efficient, but it works for me. Now that I have a bunch of clients on Quickbooks, I will likely stick my own stuff in there since I have so darn much of it and it continues to get more complicated by the day. Budgeting Tool #1 (Monthly Budget Tracking and Summary), Budgeting Tool #2 (Cash Flow Analysis), Budgeting Tool #3 (Asset and Liability Tracker, i.e. a balance sheet. . .but without considering the value of my home because I'm not selling anytime soon, nor borrowing against it), and Budgeting Tool #4 (Year-by-year budget comparison).
- Living below your means and saving for the future is important, but you need to insure against the terrible possibility of a death in the family. I wrote about Life Insurance early on, and a reader was kind enough to put together a basic primer on Life Insurance Basics. I have yet to write about disability or long-term care insurance. They too are important. It is naive to think the community will (or even can) pick up the pieces for you as this family in Money Magazine believes (ouch)!
- And to round out the Top 10 posts/subject matters, I will just mention that I believe financial issues are best tackled early, with honesty, and with a belief that the problems can be solved through hard work.
Well, that list should provide at least a few things to hang your hat on!
2 - have you or any of your readers considered or seen the following:creating virtual learning for frum schools as is currently being done for secular colleges and other professional online training.
community limits on simcha spending
a paid service plan like insurance that pays for chasonnas
communities working together to cook for simchas.
Virtual Learning
As far as I know there are entrepreneurs looking to develop virtual learning. I was even fortunate enough to have a guest poster write about Virtual Schooling. Room 613 (sorry I can't remember the web address) is one that I have heard of geared towards frum students. While I try to use my little 'soap box' to look at education alternatives from homeschooling, to hybrid schooling, or alternative schedules (the four day schedule continues to grow on me) as well as news out of public schools, I don't see myself jumping on the virtual learning bandwagon quite yet, but I do believe there is a lot of potential. But this comes from someone who doesn't believe calculators should be used until algebra, and then only a basic 4-function. I'm not a technophobe, but a personal connection to the educator still is a basic for me.
Spending Limits on Smachot
Regarding community spending limit on smachot, I think the plans have helped somewhat, but they aren't very effective. The Agudah put foward some standards in the early part of this decade, but it is hard to take the standards seriously when a disclaimer was offered that the standards would not apply in "exceptional circumstances." The vort, which was supposed to be eliminated, continues to grow in popularity. And, I haven't been to any "normal" weddings where the sisters of the chatan and kallah were not wearing ballroom gowns.
Different Chassidish communities have been experimenting with takanot and, quite frankly, what is laid out in stone is still ridiculously expensive even though the kehilla, unlike those the Agudah targets, are bound to listen. Helping shave costs is important, but when incomes don't cover the expenses, I'm afraid it is time to switch to the "Cake and Punch" option.
And the emphasis on gift-giving (despite the laundry list of mandatory "gifts" being trimmed) is still ridiculously expensive. Furthermore, while I realize that the dating cycle of the modern Orthodox young lady and her Chassidish counterpart are worlds apart, I question the emphasis on gift giving the the yeshivish and Chassidish worlds. I believe that the amount of money spend on gifts is not only terribly expensive and unjust to those without the means, but that it disconnects a the young couple from the reality that is about to hit them when they get married.
The Belz community has decided that interest free loans to the tune of $25,000 for each mechutan is the way to go. I counter that a plan that starts with debt isn't much of a plan at all, even if the massive amount of debt is easier to dig out of because it is interest free. Plus, the gemach fund should be just about all but broke now.
If I were writing a wedding takana it would simply be no loans, not against the house, not against the 401k, and certainly not against the credit card. Once you are dealing with cash, it is an entirely different beast. Bring on the lox and bagels!
Communities working together to cook for simchas
In the first question I pointed to a post on camp co-operatives. There is no reason that families can't come together to provide sides dishes for a brit milah, bar mitzvah, or even a wedding (although it would be problematic in a shul or facility where there needs to be a food license). Sheva berachot very often involve such efforts. There is no reason no to try and promote this solution, perhaps amongst a small group of friends. There are library books about forming co-operatives that are fair to those involved. That would be a good resource to look at if you want to try something in a small community, or amongst demographic, e.g. young couples having their 1st or 2nd child.
3. Has anyone outlined the timeline of frum milestones & financial planning [as is being talked about on http://serandez.blogspot.com/search/label/Jewish%20Economics%20Survey ]I'm not sure I understand the question, so I hope the writer will elaborate.
General financial goals might include: building an emergency fund, saving for a down payment on a home (I'm a traditionalist and still believe in down payments), funding retirement accounts, putting away money for your children's education. Those looking to start their own business or take on a big investment might include milestones to fund and build the business, as well as meet certain milestones in certification, education, and what have you.
Frum milestones would include paying tuition (ouch!), brit milah (the minimum: paying the mohel and serving a seudah to a minyan), bar mitzvah (the minimum: tefillin, tallit where applicable, and either a kiddush or sedah to mark the occassion). Chuppah (the minimum: a ring + a photocopied ketubah+ minyan to be present at and share in the seudah), Levaya-may you live to 120- (minimum: kosher pinebox + kittel + burial plot).
I see no reason to mark any occasion with the bare minimum by design, but I also see no need to make conformity my be all and end all when what the Goldberg's are doing doesn't particularly suit our way of going about things. As, the radio talk show host would say:"Don't even consider keeping up with the[Goldberg's]. THEY'RE BROKE."
with appreciation,A Reader
Monday, July 13, 2009
Book Review: The Total Money Makeover
I have to thank my wonderful readers for introducing me to Dave Ramsey, author of the best selling book The Total Money Makeover. Meeting Dave Ramsey by listening to his radio show and reading his books (I have read a number of them) was sort of like meeting my financial twin. Who would ever imagine that my financial twin would be more fiscally conservative, Protestant, male, and bald? This promises to be a short review because someone has put a hold on this book and I cannot renew it and I'd rather someone who might need this book get their hands on it because I've been practicing "Grandma's Finance" for a long time.
This book is, in Dave Ramsey's own words "NOT sophisticated or complicated." It is not academic, nor is it a finance manual, nor does it present ideas that are earth shattering. Rather it is a presentation of a plan that will help individuals and families tackle their finances head on by getting out of debt and building wealth. Simple as that.
You might ask, what makes this book different from the many other books that outline the same concepts? I would answer that this book is both entertaining and inspiring, plus it has a great, easy to read format where ideas are set off for clarity. Unlike yours truly (that would be me), who has always been unsophisticated and risk adverse, Dave Ramsey has a story, or as he writes, "I have been there, done that. I have a PhD in D-U-M-B. So I know what it is like to be scared and scarred. I know what it is like to have my marriage hanging by a thread because of financial stress. I know what it is like to have my hopes and dreams crushed by my own stupid decisions."
As I mentioned above, Dave Ramsey is a Protestant, and a quite serious one at that. Some of the inspiration in his book does come from the Bible. Some might be afraid of his books because he is a serious Christian. I am not afraid of reading lines from Psalms (Tehillim) or Proverbs (Mishlei) because these passages only reinforce a commonsense Torah approach to personal finance, one of simplicity guided by a consistent philosophy. And if anything was quoted from the Christian Bible, it certainly isn't anything that our great sages have not said. If you listen to his radio show, I think you can appreciate his religious background more. One thing he I have never heard him advise is holding off children as a way to solve a financial problem. He considers building a family of great importance, which is not something I sense from other financial authors. His ministry is named "Financial Peace" the goals go far beyond sensible finance and into building strong marriages and families.
The real inspiration in this book I believes comes from the stories interspersed throughout the book of individuals and families that have "changed their family tree" by turning their lives around. Seeing how other people have succeeded is empowering! Additionally, Dave Ramsey has some great quotes and a good sense of humor. The following are some saying to hang your hat on:
The first part of the book tackles some debt myths, namely that debt is a tool used to create prosperity. As Dave [Ramsey] writes: "Debt adds considerable risk, most often doesn't bring prosperity, and isn't used by wealthy people nearly as much as we are led to believe." Another book that I recommend, which Dave references is "The Millionaire Next Door." I was raised in by unsophisticated parents who taught me to save for the next big purchase. I remember sitting through finance class dumbfounded by the idea that people would actually take out loans against their homes to invest in the stock market. I managed to run all the calculations asked of me, but in real life I've seen these calculations destroy marriages.
Dave also recommends against loaning to friends and relatives (see more notes on that below), cosigning loans (guess who is on the hook should your relative default?!), and payday loans. He debunks the myth that "ninety days [is the] same as cash" and that a person will always have a car payment (nope, "the average millionaire drives a two-year-old car with no payments") .
He doesn't like car leases (which he refers to as fleeces), new cars, 30-year mortgages, whole life insurance/cash value insurance, credit cards (most people spend more and few pay them off each and every month), debt consolidation (because it only treats the symptom) and debt-management companies (too much fraud and a great way to trash your credit in addition to treating the symptom via a 3rd party no less), buying gold, get rich quick schemes, gambling, mobile homes (OK, I doubt any of my readers have a mobile home, but you never know), prepaying funeral and college expenses (you can do better by investing, additionally see my notes below), home equity lines of credit, student loans, and bankruptcy (it might be necessary in some situations, but it isn't painless procedures where "you merrily trot off into your future to start fresh").
What does he recommend? Using cash, frugal living, getting on a written monthly budget, saving for retirement ("Ed McMahon isn't coming". . . certainly not without Techiyat HaMetim), being adequately insured and drawing up a will (auto, home, life, disability, health, long-term care for those over 60), having an emergency fund, paying off the 15-year mortgage, putting away for your children's college education, and having FUN with your money (not before you have some solid footing however).
Before delving into his plan, Dave Ramsey outlines some hurdles which cause people to resist changing their financial lives, namely:
There is a story in this section that I think is worth sharing. Although the story involves Christmas, it could be about making a simcha or forgoing social expectations from what you serve or wear on yom tov, to what you do with your kids in the summer, to what you wear on your head:
The Plan
Now that I've completed the (rather lengthy) introduction I will quickly outline the plan that Dave Ramsey recommends for getting out of debt and building long-term wealth which he calls Baby Steps. I am presenting the Baby Steps in brief. Plenty of questions are asked and answered in this section. If this plan is of interest, read the book!
1. Save $1,000 Fast: To inspire confidence you need to get started and focus your efforts. He recommends getting your hands on $1000, the baby emergency fund because "it is going to rain." Whatever it takes to get $1,000 of cash in your hands, do it. Have a garage sale, return stuff, work some extra shifts, cut coupons, etc. Once you've got it, hide it and keep it liquid.
[Shocking States: 49% of Americans could cover less than one month's expenses if they lost their income].
2. The Debt Snowball: Debt is the enemy and the goal is to eliminate all debt with the exception of the mortgage. Dave recommends lining up all the debts owed by amount and start paying them off from smallest to largest, while making minimum payments on all larger loans. I do have a quibble with this (see below), but he bases his method on inspiring confidence in one's abilities rather than on interest calculations which he calls "behavior modification over math." He has worked with many people and has observed that small victories lead to larger victories. The way to get the snowball rolling, of course, entails radical action and a lot of beans and rice.
3. Finish the Emergency Fund: Kick Murphy Out. "Murphy" is a play on Murphy's law. Dave writes, "an emergency fund can turn crises into inconveniences." Dave recommends a three to six month emergency fund of money needed to pay expenses if you lose your income. He mentions that women are more security oriented and that this step will improve many a marriage.
4. Maximize Retirement Investing. Here Dave recommends 15% of income be saved for retirement. First you put away in a 401(k) what your employer will match, followed by the remainder in a ROTH IRA if you quality. He has a nice (but simplistic) chart which clearly demonstrates just how much easier it is to put away small amounts when you are younger.
5. College Funding. I'm going to keep this section really brief. Dave hates student loans, as do I, and recommends figuring out how to do without. Note that saving for college follows saving for retirement. And Dave likes ESA's (Coverdells) over 529s because of the flexibility of investing.
6. Pay Off the Home Mortgage. Here he points out that the tax savings from a mortgage don't justify paying the interest and that leveraging your home isn't the way to make money. We all like to reduce our taxes, but it doesn't make sense to pay more interest in order to pay fewer taxes (a point finance and accounting professors will make which, unlike leveraging your home, is financially sound for those who want to follow Grandma's Money Rules).
7. Build wealth and have FUN. Once you have set up a strong foundation and have built some wealth through investing, there is no reason not to have some fun. It could be a new toy, being super-duper charitable, or a combination while making wealth a blessing, not a curse. Dave notes that wealth comes with responsibility and warns against "affluenza."
All in all, I HIGHLY RECOMMEND this book as a motivator for getting out of debt or just developing a philosphy toward personal finance. I would not use it as an investment manual (see note below). Many readers write me with questions and I am so thankful to my readers for introducing me to this book because I think it presents a simple and healthy view on how to approach finances including the spiritual.
I do have more Dave Ramsey posts coming up, so stay tuned.
----------------------------------------------------------------------------------------------
Like I said, I love this book, but I do have a few quibbles, which in the scheme of things aren't anything major which is why I am noting them in small print:
1. I don't like carrying cash, so I have a hard time jumping on that train. That said, I do not recommend taking out a credit card until you have established consistent and frugal spending habits. And I would also say that anyone who has reached the end of the month and found themselves unable to pay their card off in full should immediately start using cash and checks. The same goes for anyone seeing their savings falling in a quarterly period.
2. I think the 15 year mortgage is fantastic, but I can't seem to jump on that train either. A 15-year mortgage would be quite a squeeze for most young people buying into my neighborhood, even if they really have it together. I do recommend budgeting extra each month, but I think the emergency fund wins out over the 15 year mortgage.
3. Dave Ramsey rules against loaning money to friends and relatives as it creates a master/servant relationship and ultimately destroys relationships. (He does not opposed gifting under certain circumstances). This is a tough one to reconcile with what we have been taught about the mitzvah of lending. However, now that I've had time to digest his thoughts and think about some real life situations I know of, I think he brings forward a good point. Certainly that halacha takes into account the changed relationships as you must be careful about not even walking by the home of the person you have lent to unecessarily so as to not badger. Personally I think there is a lot to be said for free loan societies that serve as a middle man between the giver and receiver.
4. Dave Ramsey reminds the reader that over time the stock market averages 12%. While I do believe in investing, I don't ever make my calculations based on such a high return. As such, it is hard for me (a lazy investor) to get worked up about pre-paid college plans for example. I think Dave Ramsey has solid advice, but I look to him more for solving the debt issues rather than the investing puzzle.
5. As a math person, I have a hard time buying into a debt snowball that pays off debt according to the amount due, rather than the APR. But I do understand the reason he recommend this method, but I would probably recommend a hybrid method after building some confidence.
I have to thank my wonderful readers for introducing me to Dave Ramsey, author of the best selling book The Total Money Makeover. Meeting Dave Ramsey by listening to his radio show and reading his books (I have read a number of them) was sort of like meeting my financial twin. Who would ever imagine that my financial twin would be more fiscally conservative, Protestant, male, and bald? This promises to be a short review because someone has put a hold on this book and I cannot renew it and I'd rather someone who might need this book get their hands on it because I've been practicing "Grandma's Finance" for a long time.
This book is, in Dave Ramsey's own words "NOT sophisticated or complicated." It is not academic, nor is it a finance manual, nor does it present ideas that are earth shattering. Rather it is a presentation of a plan that will help individuals and families tackle their finances head on by getting out of debt and building wealth. Simple as that.
You might ask, what makes this book different from the many other books that outline the same concepts? I would answer that this book is both entertaining and inspiring, plus it has a great, easy to read format where ideas are set off for clarity. Unlike yours truly (that would be me), who has always been unsophisticated and risk adverse, Dave Ramsey has a story, or as he writes, "I have been there, done that. I have a PhD in D-U-M-B. So I know what it is like to be scared and scarred. I know what it is like to have my marriage hanging by a thread because of financial stress. I know what it is like to have my hopes and dreams crushed by my own stupid decisions."
As I mentioned above, Dave Ramsey is a Protestant, and a quite serious one at that. Some of the inspiration in his book does come from the Bible. Some might be afraid of his books because he is a serious Christian. I am not afraid of reading lines from Psalms (Tehillim) or Proverbs (Mishlei) because these passages only reinforce a commonsense Torah approach to personal finance, one of simplicity guided by a consistent philosophy. And if anything was quoted from the Christian Bible, it certainly isn't anything that our great sages have not said. If you listen to his radio show, I think you can appreciate his religious background more. One thing he I have never heard him advise is holding off children as a way to solve a financial problem. He considers building a family of great importance, which is not something I sense from other financial authors. His ministry is named "Financial Peace" the goals go far beyond sensible finance and into building strong marriages and families.
The real inspiration in this book I believes comes from the stories interspersed throughout the book of individuals and families that have "changed their family tree" by turning their lives around. Seeing how other people have succeeded is empowering! Additionally, Dave Ramsey has some great quotes and a good sense of humor. The following are some saying to hang your hat on:
"Winning at money is 80 percent behavior and 20 percent head knowledge."
"Ninety percent of solving a problem is realizing there is one."
"It is human nature to want it and want it now; it is also a sign of immaturity."
"We buy things we don't need with money we don't have in order to impress people we don't like."
"The secrets of the rich don't exist, because the principles aren't a secret."
"We have met the enemy and he is us."
"Don't even consider keeping up with the Joneses. THEY'RE BROKE."
"Radical change. . . is required for a money breakthrough."
"Christmas is not an emergency." (I.e. You know it is coming, so plan ahead.)
"Live like no one else today so you can live like no one else tomorrow."
The first part of the book tackles some debt myths, namely that debt is a tool used to create prosperity. As Dave [Ramsey] writes: "Debt adds considerable risk, most often doesn't bring prosperity, and isn't used by wealthy people nearly as much as we are led to believe." Another book that I recommend, which Dave references is "The Millionaire Next Door." I was raised in by unsophisticated parents who taught me to save for the next big purchase. I remember sitting through finance class dumbfounded by the idea that people would actually take out loans against their homes to invest in the stock market. I managed to run all the calculations asked of me, but in real life I've seen these calculations destroy marriages.
Dave also recommends against loaning to friends and relatives (see more notes on that below), cosigning loans (guess who is on the hook should your relative default?!), and payday loans. He debunks the myth that "ninety days [is the] same as cash" and that a person will always have a car payment (nope, "the average millionaire drives a two-year-old car with no payments") .
He doesn't like car leases (which he refers to as fleeces), new cars, 30-year mortgages, whole life insurance/cash value insurance, credit cards (most people spend more and few pay them off each and every month), debt consolidation (because it only treats the symptom) and debt-management companies (too much fraud and a great way to trash your credit in addition to treating the symptom via a 3rd party no less), buying gold, get rich quick schemes, gambling, mobile homes (OK, I doubt any of my readers have a mobile home, but you never know), prepaying funeral and college expenses (you can do better by investing, additionally see my notes below), home equity lines of credit, student loans, and bankruptcy (it might be necessary in some situations, but it isn't painless procedures where "you merrily trot off into your future to start fresh").
What does he recommend? Using cash, frugal living, getting on a written monthly budget, saving for retirement ("Ed McMahon isn't coming". . . certainly not without Techiyat HaMetim), being adequately insured and drawing up a will (auto, home, life, disability, health, long-term care for those over 60), having an emergency fund, paying off the 15-year mortgage, putting away for your children's college education, and having FUN with your money (not before you have some solid footing however).
Before delving into his plan, Dave Ramsey outlines some hurdles which cause people to resist changing their financial lives, namely:
#1: Ignorance or lack of know-how. Somehow when it comes to money, people get defensive. Dave writes: "Ignorance is not lack of intelligence; it is lack of know-how."
#2: "Keeping up with the Joneses: The Joneses Can't Do Math" and they are likely broke.
There is a story in this section that I think is worth sharing. Although the story involves Christmas, it could be about making a simcha or forgoing social expectations from what you serve or wear on yom tov, to what you do with your kids in the summer, to what you wear on your head:
"Radical change in the quest for approval, which has involved purchasing stuff with money we don't have, is required for a money breakthrough. Sara's breakthrough came with family. Her family was upper-middle-crust and had always given Christmas gifts to every member. With twenty nieces and nephews and six sets of adults to buy for, just on her side, the budget was ridiculous. Sara's announcement at Thanksgiving that this year Christmas giving was going to be done with the drawing of names, because she and Bob couldn't afford it, was earth-shattering. Some of you are grinning as if this is no big deal. It was a huge deal in Sara's family! Gift giving was a tradition! Her mother and two of her sisters-in-law were furious. Very little thanks were given that Thanksgiving, but Sara stood her ground and said, "No more.""
The Plan
Now that I've completed the (rather lengthy) introduction I will quickly outline the plan that Dave Ramsey recommends for getting out of debt and building long-term wealth which he calls Baby Steps. I am presenting the Baby Steps in brief. Plenty of questions are asked and answered in this section. If this plan is of interest, read the book!
1. Save $1,000 Fast: To inspire confidence you need to get started and focus your efforts. He recommends getting your hands on $1000, the baby emergency fund because "it is going to rain." Whatever it takes to get $1,000 of cash in your hands, do it. Have a garage sale, return stuff, work some extra shifts, cut coupons, etc. Once you've got it, hide it and keep it liquid.
[Shocking States: 49% of Americans could cover less than one month's expenses if they lost their income].
2. The Debt Snowball: Debt is the enemy and the goal is to eliminate all debt with the exception of the mortgage. Dave recommends lining up all the debts owed by amount and start paying them off from smallest to largest, while making minimum payments on all larger loans. I do have a quibble with this (see below), but he bases his method on inspiring confidence in one's abilities rather than on interest calculations which he calls "behavior modification over math." He has worked with many people and has observed that small victories lead to larger victories. The way to get the snowball rolling, of course, entails radical action and a lot of beans and rice.
3. Finish the Emergency Fund: Kick Murphy Out. "Murphy" is a play on Murphy's law. Dave writes, "an emergency fund can turn crises into inconveniences." Dave recommends a three to six month emergency fund of money needed to pay expenses if you lose your income. He mentions that women are more security oriented and that this step will improve many a marriage.
4. Maximize Retirement Investing. Here Dave recommends 15% of income be saved for retirement. First you put away in a 401(k) what your employer will match, followed by the remainder in a ROTH IRA if you quality. He has a nice (but simplistic) chart which clearly demonstrates just how much easier it is to put away small amounts when you are younger.
5. College Funding. I'm going to keep this section really brief. Dave hates student loans, as do I, and recommends figuring out how to do without. Note that saving for college follows saving for retirement. And Dave likes ESA's (Coverdells) over 529s because of the flexibility of investing.
6. Pay Off the Home Mortgage. Here he points out that the tax savings from a mortgage don't justify paying the interest and that leveraging your home isn't the way to make money. We all like to reduce our taxes, but it doesn't make sense to pay more interest in order to pay fewer taxes (a point finance and accounting professors will make which, unlike leveraging your home, is financially sound for those who want to follow Grandma's Money Rules).
7. Build wealth and have FUN. Once you have set up a strong foundation and have built some wealth through investing, there is no reason not to have some fun. It could be a new toy, being super-duper charitable, or a combination while making wealth a blessing, not a curse. Dave notes that wealth comes with responsibility and warns against "affluenza."
All in all, I HIGHLY RECOMMEND this book as a motivator for getting out of debt or just developing a philosphy toward personal finance. I would not use it as an investment manual (see note below). Many readers write me with questions and I am so thankful to my readers for introducing me to this book because I think it presents a simple and healthy view on how to approach finances including the spiritual.
I do have more Dave Ramsey posts coming up, so stay tuned.
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Like I said, I love this book, but I do have a few quibbles, which in the scheme of things aren't anything major which is why I am noting them in small print:
1. I don't like carrying cash, so I have a hard time jumping on that train. That said, I do not recommend taking out a credit card until you have established consistent and frugal spending habits. And I would also say that anyone who has reached the end of the month and found themselves unable to pay their card off in full should immediately start using cash and checks. The same goes for anyone seeing their savings falling in a quarterly period.
2. I think the 15 year mortgage is fantastic, but I can't seem to jump on that train either. A 15-year mortgage would be quite a squeeze for most young people buying into my neighborhood, even if they really have it together. I do recommend budgeting extra each month, but I think the emergency fund wins out over the 15 year mortgage.
3. Dave Ramsey rules against loaning money to friends and relatives as it creates a master/servant relationship and ultimately destroys relationships. (He does not opposed gifting under certain circumstances). This is a tough one to reconcile with what we have been taught about the mitzvah of lending. However, now that I've had time to digest his thoughts and think about some real life situations I know of, I think he brings forward a good point. Certainly that halacha takes into account the changed relationships as you must be careful about not even walking by the home of the person you have lent to unecessarily so as to not badger. Personally I think there is a lot to be said for free loan societies that serve as a middle man between the giver and receiver.
4. Dave Ramsey reminds the reader that over time the stock market averages 12%. While I do believe in investing, I don't ever make my calculations based on such a high return. As such, it is hard for me (a lazy investor) to get worked up about pre-paid college plans for example. I think Dave Ramsey has solid advice, but I look to him more for solving the debt issues rather than the investing puzzle.
5. As a math person, I have a hard time buying into a debt snowball that pays off debt according to the amount due, rather than the APR. But I do understand the reason he recommend this method, but I would probably recommend a hybrid method after building some confidence.
Monday, March 02, 2009
Dear Orthonomics: What do you think?
What About your readers?
Dear Orthonomics,
Can you please advise? I have found an incredible deal on a quasi-essential big ticket item that would really help improve quality of life in our home. I’m thrilled to find this item, which I predicted would cost over $1000 for only $600. However, I do not have the cash to buy this item and will need to put it on a high interest rate credit card. I will be able to chip away at the debt each month and believe I will pay off the entire purchase in just over one year, incurring around $100 in additional cost. I’ve calculated the price after interest and it still is a deeply discounted. What do you think?
Sincerely,
A reader
Dear Reader,
My answer won’t surprise you! Don’t do it! Personal finance is more about behavior than numbers. While the numbers work out favorably, you have to keep in mind that another great deal will come along. Between now and then, you can save up the cash for the purpose. As you state, the item is quasi-essential, not essential. Refraining from the purchase will not prevent you from working or receiving necessary and expensive medical care, it will simply make your life more convenient.
We have a saying in this house, “debt begets debt.” If you do not have the cash to make a relatively small purchase, and this is a relatively small purchase, you are certain to find yourself in a bind as unexpected purchases accrue. And life has its way of throwing the unexpected, from increased prices for essentials like rent, utilities, food, or gas, to some thug sticking nails into your car tire twice during the same week or busting your windshield (yes, both of these things happened to us!), to the shower doors and bedroom door lock malfunctioning and leaving you nearly trapped inside (yes, both of these have also happened to us!).
If you really believe that you can chip away at this debt over the course of a year, you can also SAVE up the cash over the same year. I recommend going into serious saving mode through all means possible. Look for a little bit of extra work here and there. Before long, you will have the cash and another deal will come along.
Sincerely,
Orthonomics
What About your readers?
Dear Orthonomics,
Can you please advise? I have found an incredible deal on a quasi-essential big ticket item that would really help improve quality of life in our home. I’m thrilled to find this item, which I predicted would cost over $1000 for only $600. However, I do not have the cash to buy this item and will need to put it on a high interest rate credit card. I will be able to chip away at the debt each month and believe I will pay off the entire purchase in just over one year, incurring around $100 in additional cost. I’ve calculated the price after interest and it still is a deeply discounted. What do you think?
Sincerely,
A reader
Dear Reader,
My answer won’t surprise you! Don’t do it! Personal finance is more about behavior than numbers. While the numbers work out favorably, you have to keep in mind that another great deal will come along. Between now and then, you can save up the cash for the purpose. As you state, the item is quasi-essential, not essential. Refraining from the purchase will not prevent you from working or receiving necessary and expensive medical care, it will simply make your life more convenient.
We have a saying in this house, “debt begets debt.” If you do not have the cash to make a relatively small purchase, and this is a relatively small purchase, you are certain to find yourself in a bind as unexpected purchases accrue. And life has its way of throwing the unexpected, from increased prices for essentials like rent, utilities, food, or gas, to some thug sticking nails into your car tire twice during the same week or busting your windshield (yes, both of these things happened to us!), to the shower doors and bedroom door lock malfunctioning and leaving you nearly trapped inside (yes, both of these have also happened to us!).
If you really believe that you can chip away at this debt over the course of a year, you can also SAVE up the cash over the same year. I recommend going into serious saving mode through all means possible. Look for a little bit of extra work here and there. Before long, you will have the cash and another deal will come along.
Sincerely,
Orthonomics
Sunday, October 12, 2008
Needed: A Mass Marketing Campaign on Savings and Frugality
I finally read an article in Business Week that nicely stated what I have been saying to my husband for years now:
Turns out frugality is making a comeback as families who have been living beyond their means get their wake up call. The Business Week article titled "The New Frugality" profiled a family that got their wake up call that frugality was a necessity when they went to sale their home, which had doubled in value, and only pulled out $60,000. They then realized that they had eaten nearly $200,000 of equity on consumables.
(Hat Tip: Dave) The New York Times has an article this week, The Frugal Teenager, Ready or Not which shows teen discretionary spending is dropping (My word! At the peak the average US teen had been spending more on discretionary items than we do as a family). For teens that are unaccustomed to hearing the word "no" the new economic reality is going to be a bumpy ride.
For the first quarter in 17 years, consumer spending has not grown and is in fact negative . (Stop and digest this figure for a moment please). An entire generation of teens and young twenties has lived an entire lifetime without a period of time where cutting back was on the national agenda. This is really incredible the more you think about it. Marketing is powerful (with a capital P) and this generation has lived during an era of buy now, pay later, creative and even more creative financing (ARMS, interest-only, nothing down), "your home as an investment/piggy bank/ATM", "housing always goes up," leverage your credit to invest, etc, and now we as a nation are getting a taste of (great) grandma's personal finance rules.
The Washington Post had an article on consumers' changing habits which is no Tightwad Gazette, but perhaps more a demonstration about how weak the frugality muscles have become. Buying what you "can get some use out of" seems more like common sense than thrift. There is a story about a mother checking out books for her daughter instead of buying them new, a grandmother paying for her grandson's *Stride Rite* pair of shoes because the mother can't afford them (my husband would like to point out that putting the burden on someone else is in no way an exercise in frugality), and a college sophomore watching tv instead of buying (not renting, buying) movies, certainly underscores the fact that a mass marketing campaign on frugality and saving is in order.
Readers: If you were designing a mass marketing campaign on savings and frugality, where would you start? What slogans would you use? What points would you drive home? And, to keep with the Ortho part of the blog, what messages does the Orthodox community need to hear most?
Bonus: If anyone puts together a quality commercial of their own as a digital file, I will feature it on my blog if you tell me how to do that (sorry, I'm technologically challenged).
I finally read an article in Business Week that nicely stated what I have been saying to my husband for years now:
*The negative savings rate in this country is going to ultimately hurt the economy. The Business Week article stated that a positive savings rate will eventually strengthen the economy. Another Business Week article predicts that hit number 2 to the financial institutions will come when massive amounts of unsecured debts from credit cards is unable to be sold and will be written off.
*This nation needs to *market* good old fashioned saving as "cool." The Business Week article mentioned the success of the the Just Say No campaign for smoking and other government marketing campaigns as models to emulate.
Turns out frugality is making a comeback as families who have been living beyond their means get their wake up call. The Business Week article titled "The New Frugality" profiled a family that got their wake up call that frugality was a necessity when they went to sale their home, which had doubled in value, and only pulled out $60,000. They then realized that they had eaten nearly $200,000 of equity on consumables.
(Hat Tip: Dave) The New York Times has an article this week, The Frugal Teenager, Ready or Not which shows teen discretionary spending is dropping (My word! At the peak the average US teen had been spending more on discretionary items than we do as a family). For teens that are unaccustomed to hearing the word "no" the new economic reality is going to be a bumpy ride.
For the first quarter in 17 years, consumer spending has not grown and is in fact negative . (Stop and digest this figure for a moment please). An entire generation of teens and young twenties has lived an entire lifetime without a period of time where cutting back was on the national agenda. This is really incredible the more you think about it. Marketing is powerful (with a capital P) and this generation has lived during an era of buy now, pay later, creative and even more creative financing (ARMS, interest-only, nothing down), "your home as an investment/piggy bank/ATM", "housing always goes up," leverage your credit to invest, etc, and now we as a nation are getting a taste of (great) grandma's personal finance rules.
The Washington Post had an article on consumers' changing habits which is no Tightwad Gazette, but perhaps more a demonstration about how weak the frugality muscles have become. Buying what you "can get some use out of" seems more like common sense than thrift. There is a story about a mother checking out books for her daughter instead of buying them new, a grandmother paying for her grandson's *Stride Rite* pair of shoes because the mother can't afford them (my husband would like to point out that putting the burden on someone else is in no way an exercise in frugality), and a college sophomore watching tv instead of buying (not renting, buying) movies, certainly underscores the fact that a mass marketing campaign on frugality and saving is in order.
Readers: If you were designing a mass marketing campaign on savings and frugality, where would you start? What slogans would you use? What points would you drive home? And, to keep with the Ortho part of the blog, what messages does the Orthodox community need to hear most?
Bonus: If anyone puts together a quality commercial of their own as a digital file, I will feature it on my blog if you tell me how to do that (sorry, I'm technologically challenged).
Tuesday, October 07, 2008
Too Cute
I don't feel like writing anything of substance right now. But I have to share a few 'Orthonomic' moments in our house that were just too cute:
Before Rosh Hashana, my son announces: "We need to buy a pomegranate even if it isn't on sale. It is ok to buy it even if it is not on sale because we need it for Rosh Hashana."
Today I was at the pharmacy and my not yet 2 year old who is also not so verbal got into my coupon pack. She starts pulling out coupons and yelling "free, free." Turns out she found a coupon for tissues that were on sale and we walked out of the pharmacy with free tissues. My word, a toddler who knows the purpose of a good coupon.
Last week I was going over the schedule with my kids. I mentioned Mommy had a stack of checks from clients and we were going to go to the bank. My son asks, "Mommy, are you going to put that money in the bank so you have it when you are too old to work." The moment was too funny.
I don't feel like writing anything of substance right now. But I have to share a few 'Orthonomic' moments in our house that were just too cute:
Before Rosh Hashana, my son announces: "We need to buy a pomegranate even if it isn't on sale. It is ok to buy it even if it is not on sale because we need it for Rosh Hashana."
Today I was at the pharmacy and my not yet 2 year old who is also not so verbal got into my coupon pack. She starts pulling out coupons and yelling "free, free." Turns out she found a coupon for tissues that were on sale and we walked out of the pharmacy with free tissues. My word, a toddler who knows the purpose of a good coupon.
Last week I was going over the schedule with my kids. I mentioned Mommy had a stack of checks from clients and we were going to go to the bank. My son asks, "Mommy, are you going to put that money in the bank so you have it when you are too old to work." The moment was too funny.
Friday, October 03, 2008
Some Frum Financial Factiods
Given that there have been no statistical studies on the financial health of the Orthodox community, we have to take whatever bits of information that we can get to try to gain some perspective on the "State of the Union." My Baltimore correspondent sent me two pieces of information published in the recent Where What When that might help give some perspective.
The first from an article "An Affordable Baltimore Wedding:"
"I did not set out to write an article concerning the issue of expensive weddings, however allow me to make a point: Since I spend a lot of time working with frum families discussing budgets and finances, I see the issues that plague us. It is my opinion that (much) more than 50 percent of families with children are in some form of financial crisis. This means that middle-aged couples are going to elderly parents for help or are borrowing money from lines of credit or credit cards. The financial pressure takes a serious toll on people."
One can only wonder what the estimated percentage would be if you included those without savings or who are raiding their savings prematurely, not just those who can't live on their salary alone.
The second comes from an advertisement and write-up regarding an event being put on by a Maryland Yeshiva to benefit the scholarship fund:
"[The scholarship fund] benefits 60 percent of its student body, currently numbering 187 girls and 86 boys. . . . . . . Last year, the Yeshiva awarded over $1.5 million dollars in scholarships."
Take out your calculator and do the math to find out the average scholarship amount is and you might be surprised. $1,500,000/((187+86)*60%)=$9,168*. At least in my own mind, this is a HUGE amount of assistance to be providing per student on scholarship.
Many have, rightfully, made the call to support local yeshiva and day schools. I've dedicated plenty of posts to this subject myself. But when you see just how much filling in is needed (and I believe most schools have a similar percentage of kids on scholarship--see a past article here where the director of Toras Emes in Los Angeles reveals only 32% of students pay full tuition), your eyes will end up bulging out. Filling in the gap in tuition as it stands currently, isn't a matter of providing a thousand dollars a student, it is a matter of providing nearly $10,000 per student (and this after grandparents are already kicking in significant amounts). Of course there are students who aren't on scholarship, but these families are definitely feeling the squeeze and could use some relief too.
I will leave my comments at that. The figures I find here and there continue to just boggle the mind.
*I looked up tuition at this school online it ranges between the mid-$15,000 to the mid-$17,000.
Given that there have been no statistical studies on the financial health of the Orthodox community, we have to take whatever bits of information that we can get to try to gain some perspective on the "State of the Union." My Baltimore correspondent sent me two pieces of information published in the recent Where What When that might help give some perspective.
The first from an article "An Affordable Baltimore Wedding:"
"I did not set out to write an article concerning the issue of expensive weddings, however allow me to make a point: Since I spend a lot of time working with frum families discussing budgets and finances, I see the issues that plague us. It is my opinion that (much) more than 50 percent of families with children are in some form of financial crisis. This means that middle-aged couples are going to elderly parents for help or are borrowing money from lines of credit or credit cards. The financial pressure takes a serious toll on people."
One can only wonder what the estimated percentage would be if you included those without savings or who are raiding their savings prematurely, not just those who can't live on their salary alone.
The second comes from an advertisement and write-up regarding an event being put on by a Maryland Yeshiva to benefit the scholarship fund:
"[The scholarship fund] benefits 60 percent of its student body, currently numbering 187 girls and 86 boys. . . . . . . Last year, the Yeshiva awarded over $1.5 million dollars in scholarships."
Take out your calculator and do the math to find out the average scholarship amount is and you might be surprised. $1,500,000/((187+86)*60%)=$9,168*. At least in my own mind, this is a HUGE amount of assistance to be providing per student on scholarship.
Many have, rightfully, made the call to support local yeshiva and day schools. I've dedicated plenty of posts to this subject myself. But when you see just how much filling in is needed (and I believe most schools have a similar percentage of kids on scholarship--see a past article here where the director of Toras Emes in Los Angeles reveals only 32% of students pay full tuition), your eyes will end up bulging out. Filling in the gap in tuition as it stands currently, isn't a matter of providing a thousand dollars a student, it is a matter of providing nearly $10,000 per student (and this after grandparents are already kicking in significant amounts). Of course there are students who aren't on scholarship, but these families are definitely feeling the squeeze and could use some relief too.
I will leave my comments at that. The figures I find here and there continue to just boggle the mind.
*I looked up tuition at this school online it ranges between the mid-$15,000 to the mid-$17,000.
Monday, September 08, 2008
New Thrifty Blogger on the Block
A poster at Imamother forum started a fantastic new blog, Saving Money Ideas. Every week she goes through different ads, including Walgreens and CVS, and does the hard work for her readers. She tells us what the good sales are and where to find the coupons that can be clipped, should they not be sitting in your coupon file. For more reading on Organizing Shopping, check out my post on the subject.
Most importantly, she has a post on how to use the CVS Extra Bucks system effectively. I see no need to reinvent the wheel, so follow the link.
Another great source for those with cash is BankRate.com. Bank Rate is a website that lets you compare different financial products with the click of a button. The website also runs some ads which might lead you to a different product that is worthwhile. I am in the process of moving our Emergency Fund to Everbank, which is offering a money market account (i.e. liquid savings account) with a 4.76% APY for 3 months. Not bad! When the promotion is up, I will head back to find another good account.
A poster at Imamother forum started a fantastic new blog, Saving Money Ideas. Every week she goes through different ads, including Walgreens and CVS, and does the hard work for her readers. She tells us what the good sales are and where to find the coupons that can be clipped, should they not be sitting in your coupon file. For more reading on Organizing Shopping, check out my post on the subject.
Most importantly, she has a post on how to use the CVS Extra Bucks system effectively. I see no need to reinvent the wheel, so follow the link.
Another great source for those with cash is BankRate.com. Bank Rate is a website that lets you compare different financial products with the click of a button. The website also runs some ads which might lead you to a different product that is worthwhile. I am in the process of moving our Emergency Fund to Everbank, which is offering a money market account (i.e. liquid savings account) with a 4.76% APY for 3 months. Not bad! When the promotion is up, I will head back to find another good account.
Tuesday, July 29, 2008
Retirement: Getting a Really Big Head Start
I have read numerous articles and even a few books directed at teaching children how to be responsible with money. One idea that has become somewhat popular is that of providing "matching funds" for children as it regards large purchases, such as a car. The kid works and saves and they parent fills in the gaps. I don't get too excited about many of these ideas. While I am not at all opposed to helping children get some financial footing in a tough world, you have to make sure you are helping them establish a solid foundation rather than feeding into consumerism and materialism.
However, a while back I read a matching funds idea that I really liked because it really captured the concepts of working, disciplined saving, and building wealth through long term investment. The idea presented involves offering a parent matching the savings of a working teen/young 20-something so long as they lock their saved earnings into a retirement account. 'Working,' of course refers to a teenager who is "on the books" either as an employee or by filing a schedule C.
Right now there are a number of teenagers working at summer jobs who are hopefully saving their money (a topic for another post, but I believe dependents who work should be expected to save part of their earnings). Now imagine the head start a child could get on retirement if he/she started funding their first IRA/ROTH IRA* while still young and the motivation he would have to continue to funding that IRA if he saw that reaching a benchmark or goal was manageable in both the short and long term.
Hopefully we all understand the time value of money and how a person who tries to save large amounts for retirement during their 40's or 50's may never catch up to a person who started saving for retirement in their teen's and 20's (and then stopped before the 40 year old got started). The time value of money is a wonder that never ceases to amaze me. And, there are a lot of online financial tools that can help one visualize the difference through graphs and charts.
The 2008 IRA limit is $5000. An individual can only fund their IRA up to the amount they earned. If we are in the position to do so when our teenagers start earning some of their own money, I will consider offering them a match for the amount of earnings they save and invest in an IRA. I think it would be a good investment, far better than the myriad of other ways parents "help" their children.
Given the current economic realities in the frum community, I would encourage parents to talk to their children when they start working about how important it is to save money for the future (be it for an emergency fund, a starter home, or retirement). Often there is only a limited period of time to build a healthy financial future. I see nothing wrong with showing a teenager it is do-able while the increments needed are far smaller.
*I recommend a ROTH IRA over an IRA, especially for teenagers who probably are not earning enough to take advantage of the present tax savings on an IRA anyways. If they aren't paying taxes as it is, it makes sense to use after-tax dollars and withdraw them tax free at 65+.
I have read numerous articles and even a few books directed at teaching children how to be responsible with money. One idea that has become somewhat popular is that of providing "matching funds" for children as it regards large purchases, such as a car. The kid works and saves and they parent fills in the gaps. I don't get too excited about many of these ideas. While I am not at all opposed to helping children get some financial footing in a tough world, you have to make sure you are helping them establish a solid foundation rather than feeding into consumerism and materialism.
However, a while back I read a matching funds idea that I really liked because it really captured the concepts of working, disciplined saving, and building wealth through long term investment. The idea presented involves offering a parent matching the savings of a working teen/young 20-something so long as they lock their saved earnings into a retirement account. 'Working,' of course refers to a teenager who is "on the books" either as an employee or by filing a schedule C.
Right now there are a number of teenagers working at summer jobs who are hopefully saving their money (a topic for another post, but I believe dependents who work should be expected to save part of their earnings). Now imagine the head start a child could get on retirement if he/she started funding their first IRA/ROTH IRA* while still young and the motivation he would have to continue to funding that IRA if he saw that reaching a benchmark or goal was manageable in both the short and long term.
Hopefully we all understand the time value of money and how a person who tries to save large amounts for retirement during their 40's or 50's may never catch up to a person who started saving for retirement in their teen's and 20's (and then stopped before the 40 year old got started). The time value of money is a wonder that never ceases to amaze me. And, there are a lot of online financial tools that can help one visualize the difference through graphs and charts.
The 2008 IRA limit is $5000. An individual can only fund their IRA up to the amount they earned. If we are in the position to do so when our teenagers start earning some of their own money, I will consider offering them a match for the amount of earnings they save and invest in an IRA. I think it would be a good investment, far better than the myriad of other ways parents "help" their children.
Given the current economic realities in the frum community, I would encourage parents to talk to their children when they start working about how important it is to save money for the future (be it for an emergency fund, a starter home, or retirement). Often there is only a limited period of time to build a healthy financial future. I see nothing wrong with showing a teenager it is do-able while the increments needed are far smaller.
*I recommend a ROTH IRA over an IRA, especially for teenagers who probably are not earning enough to take advantage of the present tax savings on an IRA anyways. If they aren't paying taxes as it is, it makes sense to use after-tax dollars and withdraw them tax free at 65+.
Sunday, June 15, 2008
On The House
The biggest personal financial news of this year, in my opinion, is that Ed McMahon's home is facing foreclosure. Born in 1923, he is no spring chicken. Yet it seems that he too has succumbed to the faulty personal finance habits of a younger generation. One has to ask, what in the world is any 85 year old doing with a mortgage, much less a mortgage in the millions that is nearing the value of his home? While Mr. McMahon sights a neck injury as putting him behind in his payments, what put him behind was clearly far too many obligations, combined with too little savings, and age.
It is high time that many of us return to the simple financial principals that guided our grandparents. Some of us might have to go back another generation to our great grandparents to find that simplicity. These principals are guided by common sense. There principals don't involve much more math than what can be done on a four-function calculator, although a computerized spreadsheet will excite the budget managers among us . These principals don't ask you to leverage equity and invest for a higher return. These principals don't require you to compare one plan with another. These principals simply required some focus and discipline.
Our grandparents got married, saved a sizable downpayment, bought a "starter home," and entered into a mortgage with a plan to pay it off. They dreamed of actually their home "free and clear." If they decided they wanted a larger home, they "bought up," rolling the equity from their 1st home into their 2nd home, while still maintaining a solid plan to own their home. They entered into traditional mortgages, not ARMS, variables, or interest only loans.
Their home was a place to live, not an "investment." They did not watch their home values like the stock market, nor chat about their equity, because it really didn't matter that much unless they were ready to "downsize." Things go up and down, and as long as the mortgage was headed south, they felt secure because they could weather a bump or two along the road.
If they wanted to watch their investments, the watched their bank and brokerage accounts. A unrealized gain in the stock market could easily be turned into a realized gain. An unrealized gain in their home was of little use to them unless it was time to "downsize." And they certainly didn't view their home as an ATM and a HELOC was not something tied to their checking accounts.
Now fastforward to the present where we have become more savvy and sophisticated. We have enough loan programs to fill a chinese menu, although that is changing. We theorize about whether we are getting the appropriate return on the money that is being used to pay off our principal. We buy homes banking on the "fact" that our income will increase. We try to evaluate if our money would do better if it wasn't tied up in equity. And we pat ourselves on the back for our sophistication because we are getting a "tax break" when we undertake a mortgage and when we pull equity out of our homes. We are proud that we are home owners. But we don't own much, perhaps we own the kitchen countertop, the stove, and the shower doors.
G-d willing, we will all be healthy until 120. Unfortunately, just like Mr. McMahon. Many grandparents in our community owe a lot on their homes. They have paid tuitions, paid for weddings, and paid for stuff "on the house." Some may owe more on their homes than the price they paid. Years ago, I attended a meeting for lobbying for more public funds for private and parochial schools. After the meeting, I asked some of the older men around the table how they managed to put their children through school and what good advice they could share with the younger people at the meeting. One man told me, "don't worry, you will make it." Then he proceeded to tell me about using Home Equity to pay for schooling, weddings, and what have you.
Families in their mid-60's with little to no savings and sizable mortgages are not "making it." If Hashem grants his good health, they may continue holding on. But, they can't afford a fall, nor because they are mortgaged up the hilt. They don't have a safety net.
I think it is time for many of us to drop the sophistication and return to the old-fashioned principals of minimal and shriking debt and cash on hand that created a real safety net and real, as opposed to unrealized, wealth. Taking a fall in retirement should not send anyone into foreclosure. And, yet, I know of instances in our own communities where a single fall could send not just one family into foreclosure, but could send them and their all too dependent children into foreclosure.
The biggest personal financial news of this year, in my opinion, is that Ed McMahon's home is facing foreclosure. Born in 1923, he is no spring chicken. Yet it seems that he too has succumbed to the faulty personal finance habits of a younger generation. One has to ask, what in the world is any 85 year old doing with a mortgage, much less a mortgage in the millions that is nearing the value of his home? While Mr. McMahon sights a neck injury as putting him behind in his payments, what put him behind was clearly far too many obligations, combined with too little savings, and age.
It is high time that many of us return to the simple financial principals that guided our grandparents. Some of us might have to go back another generation to our great grandparents to find that simplicity. These principals are guided by common sense. There principals don't involve much more math than what can be done on a four-function calculator, although a computerized spreadsheet will excite the budget managers among us . These principals don't ask you to leverage equity and invest for a higher return. These principals don't require you to compare one plan with another. These principals simply required some focus and discipline.
Our grandparents got married, saved a sizable downpayment, bought a "starter home," and entered into a mortgage with a plan to pay it off. They dreamed of actually their home "free and clear." If they decided they wanted a larger home, they "bought up," rolling the equity from their 1st home into their 2nd home, while still maintaining a solid plan to own their home. They entered into traditional mortgages, not ARMS, variables, or interest only loans.
Their home was a place to live, not an "investment." They did not watch their home values like the stock market, nor chat about their equity, because it really didn't matter that much unless they were ready to "downsize." Things go up and down, and as long as the mortgage was headed south, they felt secure because they could weather a bump or two along the road.
If they wanted to watch their investments, the watched their bank and brokerage accounts. A unrealized gain in the stock market could easily be turned into a realized gain. An unrealized gain in their home was of little use to them unless it was time to "downsize." And they certainly didn't view their home as an ATM and a HELOC was not something tied to their checking accounts.
Now fastforward to the present where we have become more savvy and sophisticated. We have enough loan programs to fill a chinese menu, although that is changing. We theorize about whether we are getting the appropriate return on the money that is being used to pay off our principal. We buy homes banking on the "fact" that our income will increase. We try to evaluate if our money would do better if it wasn't tied up in equity. And we pat ourselves on the back for our sophistication because we are getting a "tax break" when we undertake a mortgage and when we pull equity out of our homes. We are proud that we are home owners. But we don't own much, perhaps we own the kitchen countertop, the stove, and the shower doors.
G-d willing, we will all be healthy until 120. Unfortunately, just like Mr. McMahon. Many grandparents in our community owe a lot on their homes. They have paid tuitions, paid for weddings, and paid for stuff "on the house." Some may owe more on their homes than the price they paid. Years ago, I attended a meeting for lobbying for more public funds for private and parochial schools. After the meeting, I asked some of the older men around the table how they managed to put their children through school and what good advice they could share with the younger people at the meeting. One man told me, "don't worry, you will make it." Then he proceeded to tell me about using Home Equity to pay for schooling, weddings, and what have you.
Families in their mid-60's with little to no savings and sizable mortgages are not "making it." If Hashem grants his good health, they may continue holding on. But, they can't afford a fall, nor because they are mortgaged up the hilt. They don't have a safety net.
I think it is time for many of us to drop the sophistication and return to the old-fashioned principals of minimal and shriking debt and cash on hand that created a real safety net and real, as opposed to unrealized, wealth. Taking a fall in retirement should not send anyone into foreclosure. And, yet, I know of instances in our own communities where a single fall could send not just one family into foreclosure, but could send them and their all too dependent children into foreclosure.
Monday, May 26, 2008
Humor: Let's Hope this Good Habit Sticks Around
So tonight over dinner, our 4 year old announces he is saving up for a house. I suggested that maybe he set his sights on a condo as a first stop informing him that sometimes you have to start small and trade up and I reminded him our current home wasn't the first stop. He countered that he would much rather a house because "it's better," and he is saving 'a lot' of money. I smiled and told him it is great he is getting a head start and he should keep up the hard work. Now if only everyone could learn and/or retain this lesson! Here is hoping this kid does.
Signing off for now. Expect some new posts in the upcoming week.
So tonight over dinner, our 4 year old announces he is saving up for a house. I suggested that maybe he set his sights on a condo as a first stop informing him that sometimes you have to start small and trade up and I reminded him our current home wasn't the first stop. He countered that he would much rather a house because "it's better," and he is saving 'a lot' of money. I smiled and told him it is great he is getting a head start and he should keep up the hard work. Now if only everyone could learn and/or retain this lesson! Here is hoping this kid does.
Signing off for now. Expect some new posts in the upcoming week.
Thursday, May 15, 2008
Building a House of Cards
alternatively, Tuition isn't the budget breaker in this budget!
Reading this letter in the newest Yated just hurts me. Budgets interest me and this budget is so overinflated, although the writer does not realize it, that it hurts. A family of six (four children) is spending a massive amount of money, and while she puts tuition as a primary issue in her letter. . . . . .tuition simply is NOT the reason their budget is literally out of control. Their costs are just simply out of control. I am literally picking up my jaw off my desk after reading this letter because I have a very solid idea of what the expenses for a family this size could be, and this is just shocking.
I hope the recent economic slowdown does not end up biting this family in the bottom. Household budgets is something I take great interest in (over the years, I've helped many people form a budget) and it is clear to me that this family has built themselves a house of cards. Their fixed costs are enormous, so much so that a turn for the worse in business or employment, could take them under, but not because they have an overinflated grocery budget (that could be changed with some hard work!), but because they have an overinflated mortgage and overinflated auto costs, etc. I've written so many posts about tackling the variable costs in a budget (food, utilities, consumer goods). But, if the obligations are massive (mortgages, car payments, students loans), cutting the food budget in half can't save you.
Presuming there are numerous families that have built a house of straw (and I'm certain there are), many families, and by extension the host communities, could be in for real problems if the big bad wolf starts to blow.
Read on [my notes in orange]:
LIFE IS UNAFFORDABLE
Dear Editor,
Today, after finally getting my kids back to school and catching up at work for the time I missed over Yom Tov, I opened up the four weeks of mail sitting at home. Maybe it was the timing that set me off, but when I opened my tuition bill for next year, I flipped.
Now, don’t get me wrong. As parents, we have committed ourselves for our children’s education to be top priority. That bill will, iy”H, be paid in full by hook or by crook. The teachers and the school staff members deserve decent salaries. But for three children, my bill was well over $20,000 [high, but it could easily be double]. What is so bothersome is that in this particular school, the tuition came out to be $8,000 per child and it goes up every year, yet the children get off every year more and more. This tuition is supposed to cover 10 months of the year. When you go through the calendar, you’ll see that it actually covers less than 8 months, which brings it to over $1,000 a month per child.
This led me to go through my expenses for the year and see exactly what my necessary living costs are and what I can cut out.
Truthfully, I am not sure how people survive. We have three kids in school and one baby at home.
Tuition is $24,000 (this includes the extra book charges, dinner charges, and the building fund fee, which we are required to pay).
Camp costs $4,000 for 3 children. One child goes to sleep-away camp. [Having seen what many camps charge, I believe cost is on the low end for camps, especially since the child in sleep-away camp is being fed].
Our mortgage, together with our homeowner’s insurance, is $48,000 a year [$4,000 a month] (and we bought our home before the prices got out of hand. Our property, even in today’s slumping market, is worth double what we paid for it). [I assume this includes tax also, but I'm told property tax is not overinflated in the boroughs. So, even if the property is worth more---which in my opinion is only meaningful if you go to sell it--$48,000 is an incredible amount of be paying on a mortgage].
$30,000 is spent annually on groceries [$2,500 a month]. This includes Yom Tov and extra shopping for the baby. [You have got to be kidding me!!!!].
Utilities cost $32,000 [$2667 per month]. [Once again, you have got to be kidding me!!!! Having been involved with shul budgets, I know you can heat and air condition a fairly large building on $32,000 a year. This is ludicrous].
$17,000 is spent on health/dental insurance. (If not for dental insurance, I would be including $20,000 on procedures done last year on my husband and two daughters). [$1416 per month. I don't know what private insurance runs. It seems overinflated to me. But, perhaps it is not so]. $16,000 is spent annually on car expenses, car insurance, and gas (since we both work and need to drive a lot). [$1,333 per month. A lot of money, but perhaps this part of the budget is the first reasonable line item].
This adds up to $123,000. This means that before taxes and maaser, we need to make a minimum of $170,000. In most cases, this requires both parents to kick in financially. [I don't dare open up this discussion again :)].
Therefore, we also need someone to watch our baby and need to hire help to make sure that the housework is done. In addition, for 2 of the 10 months that our children are home from school due to days off, we have to spend extra money to entertain them [the word "entertain" makes my skin crawl, but that is a subject for another post]- through school sponsored programs or other programs - since my husband and I cannot take off (our jobs don’t give us off for 2 months a year). This costs approximately $50 a day, which comes out to $2,000 a year. Our household help costs $22,000. This brings the family income to $194,000.
For the summer, we move upstate for income purposes. We spend an additional $10,000 on a bungalow and expenses. This brings the number up to a minimum of 204,000- and at that point taxes increase and so does maaser [I start my budget not from what we have to earn, but from what we have to spend from the primary income earner's budget after saving a set amount. Just noting this because this method of laying out a budget is strange to me]...
Remember, this is a 6-member family and we try very hard to monitor our expenses [whatever you say. . . .your food and utility budget would eat through our entire take home pay]. However, often, time is more valuable and we have to spend more on food so that we can spend more time with our children; we might shop at a more expensive local store than run around to cheaper stores. In this cheshbon, I did not mention clothing and other items such as Chol Hamoed trips, Afikoman and birthday presents [thank G-d. I think I'd faint if the cheshbon included those numbers], etc., but I think you get the picture. [Nor do you mention life insurance or retirement savings which is an absolute MUST, especially for a family spending like this].
After making this calculation, I started wondering. My spouse and I both work full time. We both try to make sure that when the kids are home from school - on school days - one of us is home with them. Sometimes it works and sometimes it doesn’t. We saved money when the going was extremely good. We also bought our house before the market exploded, so our mortgage is pretty reasonable for our neighborhood. But there is a whole generation that is graduating school now. They need to be able to live. Something in our society is going to have to give. We may have to create a secluded culture where we are all committed to hiring from within, but then we also need to make sure that our boys and girls are qualified to perform these jobs [I'd say a large part of the spending/budgeting issues just might be the already secluded society. Unfortunately, it is an uphill battle to educate about a different way when there is little to no exposure to it. And, yet, the spending habits I've highlighted on this blog erode the financial foundation of so many that I can't help but to try to be a small voice out there].
I know that this letter will probably have people writing in about how I could save money here and how I could save some money there. (I know I could. I could also move out of Brooklyn to Eretz Yisroel.) But the reality is that, boruch Hashem, I can afford to pay more than maaser, and I can afford to pay more than the tuition bill. As I see it, however, there are more of us who can’t afford basic expenses and these numbers increase daily. Our school system may need restructuring [darn right!], food prices have to come down [they are going up], our baalei battim may have to commit to hiring only frum people [they have bills to pay to, nu?], and other things have to be done [like a complete economic overhaul?]. But we need to start making changes and we need to start making them quickly. The economy is definitely not working in our favor. I hope to hear positive feedback.
C. K.
P.S. Check out some of the comments on ProfK's post, New York the center of the World. . . Not" written by those who left or want to leave NY and the parents/in-laws are hot under the collar about it. Yes, as the letter writer says, "we need to start making changes" and "something in our society has to give." Living in Brooklyn (or anywhere else that housing costs are out of this world) is something that will have to give.
alternatively, Tuition isn't the budget breaker in this budget!
Reading this letter in the newest Yated just hurts me. Budgets interest me and this budget is so overinflated, although the writer does not realize it, that it hurts. A family of six (four children) is spending a massive amount of money, and while she puts tuition as a primary issue in her letter. . . . . .tuition simply is NOT the reason their budget is literally out of control. Their costs are just simply out of control. I am literally picking up my jaw off my desk after reading this letter because I have a very solid idea of what the expenses for a family this size could be, and this is just shocking.
I hope the recent economic slowdown does not end up biting this family in the bottom. Household budgets is something I take great interest in (over the years, I've helped many people form a budget) and it is clear to me that this family has built themselves a house of cards. Their fixed costs are enormous, so much so that a turn for the worse in business or employment, could take them under, but not because they have an overinflated grocery budget (that could be changed with some hard work!), but because they have an overinflated mortgage and overinflated auto costs, etc. I've written so many posts about tackling the variable costs in a budget (food, utilities, consumer goods). But, if the obligations are massive (mortgages, car payments, students loans), cutting the food budget in half can't save you.
Presuming there are numerous families that have built a house of straw (and I'm certain there are), many families, and by extension the host communities, could be in for real problems if the big bad wolf starts to blow.
Read on [my notes in orange]:
LIFE IS UNAFFORDABLE
Dear Editor,
Today, after finally getting my kids back to school and catching up at work for the time I missed over Yom Tov, I opened up the four weeks of mail sitting at home. Maybe it was the timing that set me off, but when I opened my tuition bill for next year, I flipped.
Now, don’t get me wrong. As parents, we have committed ourselves for our children’s education to be top priority. That bill will, iy”H, be paid in full by hook or by crook. The teachers and the school staff members deserve decent salaries. But for three children, my bill was well over $20,000 [high, but it could easily be double]. What is so bothersome is that in this particular school, the tuition came out to be $8,000 per child and it goes up every year, yet the children get off every year more and more. This tuition is supposed to cover 10 months of the year. When you go through the calendar, you’ll see that it actually covers less than 8 months, which brings it to over $1,000 a month per child.
This led me to go through my expenses for the year and see exactly what my necessary living costs are and what I can cut out.
Truthfully, I am not sure how people survive. We have three kids in school and one baby at home.
Tuition is $24,000 (this includes the extra book charges, dinner charges, and the building fund fee, which we are required to pay).
Camp costs $4,000 for 3 children. One child goes to sleep-away camp. [Having seen what many camps charge, I believe cost is on the low end for camps, especially since the child in sleep-away camp is being fed].
Our mortgage, together with our homeowner’s insurance, is $48,000 a year [$4,000 a month] (and we bought our home before the prices got out of hand. Our property, even in today’s slumping market, is worth double what we paid for it). [I assume this includes tax also, but I'm told property tax is not overinflated in the boroughs. So, even if the property is worth more---which in my opinion is only meaningful if you go to sell it--$48,000 is an incredible amount of be paying on a mortgage].
$30,000 is spent annually on groceries [$2,500 a month]. This includes Yom Tov and extra shopping for the baby. [You have got to be kidding me!!!!].
Utilities cost $32,000 [$2667 per month]. [Once again, you have got to be kidding me!!!! Having been involved with shul budgets, I know you can heat and air condition a fairly large building on $32,000 a year. This is ludicrous].
$17,000 is spent on health/dental insurance. (If not for dental insurance, I would be including $20,000 on procedures done last year on my husband and two daughters). [$1416 per month. I don't know what private insurance runs. It seems overinflated to me. But, perhaps it is not so]. $16,000 is spent annually on car expenses, car insurance, and gas (since we both work and need to drive a lot). [$1,333 per month. A lot of money, but perhaps this part of the budget is the first reasonable line item].
This adds up to $123,000. This means that before taxes and maaser, we need to make a minimum of $170,000. In most cases, this requires both parents to kick in financially. [I don't dare open up this discussion again :)].
Therefore, we also need someone to watch our baby and need to hire help to make sure that the housework is done. In addition, for 2 of the 10 months that our children are home from school due to days off, we have to spend extra money to entertain them [the word "entertain" makes my skin crawl, but that is a subject for another post]- through school sponsored programs or other programs - since my husband and I cannot take off (our jobs don’t give us off for 2 months a year). This costs approximately $50 a day, which comes out to $2,000 a year. Our household help costs $22,000. This brings the family income to $194,000.
For the summer, we move upstate for income purposes. We spend an additional $10,000 on a bungalow and expenses. This brings the number up to a minimum of 204,000- and at that point taxes increase and so does maaser [I start my budget not from what we have to earn, but from what we have to spend from the primary income earner's budget after saving a set amount. Just noting this because this method of laying out a budget is strange to me]...
Remember, this is a 6-member family and we try very hard to monitor our expenses [whatever you say. . . .your food and utility budget would eat through our entire take home pay]. However, often, time is more valuable and we have to spend more on food so that we can spend more time with our children; we might shop at a more expensive local store than run around to cheaper stores. In this cheshbon, I did not mention clothing and other items such as Chol Hamoed trips, Afikoman and birthday presents [thank G-d. I think I'd faint if the cheshbon included those numbers], etc., but I think you get the picture. [Nor do you mention life insurance or retirement savings which is an absolute MUST, especially for a family spending like this].
After making this calculation, I started wondering. My spouse and I both work full time. We both try to make sure that when the kids are home from school - on school days - one of us is home with them. Sometimes it works and sometimes it doesn’t. We saved money when the going was extremely good. We also bought our house before the market exploded, so our mortgage is pretty reasonable for our neighborhood. But there is a whole generation that is graduating school now. They need to be able to live. Something in our society is going to have to give. We may have to create a secluded culture where we are all committed to hiring from within, but then we also need to make sure that our boys and girls are qualified to perform these jobs [I'd say a large part of the spending/budgeting issues just might be the already secluded society. Unfortunately, it is an uphill battle to educate about a different way when there is little to no exposure to it. And, yet, the spending habits I've highlighted on this blog erode the financial foundation of so many that I can't help but to try to be a small voice out there].
I know that this letter will probably have people writing in about how I could save money here and how I could save some money there. (I know I could. I could also move out of Brooklyn to Eretz Yisroel.) But the reality is that, boruch Hashem, I can afford to pay more than maaser, and I can afford to pay more than the tuition bill. As I see it, however, there are more of us who can’t afford basic expenses and these numbers increase daily. Our school system may need restructuring [darn right!], food prices have to come down [they are going up], our baalei battim may have to commit to hiring only frum people [they have bills to pay to, nu?], and other things have to be done [like a complete economic overhaul?]. But we need to start making changes and we need to start making them quickly. The economy is definitely not working in our favor. I hope to hear positive feedback.
C. K.
P.S. Check out some of the comments on ProfK's post, New York the center of the World. . . Not" written by those who left or want to leave NY and the parents/in-laws are hot under the collar about it. Yes, as the letter writer says, "we need to start making changes" and "something in our society has to give." Living in Brooklyn (or anywhere else that housing costs are out of this world) is something that will have to give.
Wednesday, February 27, 2008
Choosing an Accountant
I like varied projects, and the very, very part time freelancing I do provides me with quite a bit of variety. This week, I met with someone who needed to get his accounting system in order for his small business to have his taxes prepared. He showed me an old return. The others are sitting in the IRS office under audit. After seeing the current return, it was no mystery why he was flagged for audit. It was obvious that the former accountant pulled numbers out of a hat. Worse yet, the accountant didn't even use the correct forms. Nor did he advise this client of 3 years regarding what expenses were deductible and which were not. Unfortunately, this man was under the impression that buying himself a burger from McDonalds while on the job qualified as deduction, since he was self-employed (ouch!). Plus (I kid you not), the form was handwritten. I've worked with a handful of people who have small business and work as consultants and I'm always saddened when previous accountants have never given them proper guidance.
So, here are a few tips if you are choosing an accountant:
1. Software: This might seem obvious as it is 2008, but the accountant you go to for any service should use software. The handwritten return filled out by a CPA is not the 1st return I've seen where software was not used. Another case I saw was a CPA who typed up a 1040 and missed a basic tax credit. One look at the form told me software was not used because software automatically ties up certain loose ends. Another mistake I saw recently, a W-2 with the incorrect amounts paid to social security and medicare. If you are paying for a service, make sure the professional uses software.
2. Garbage In, Garbage Out: I have seen tax returns where no expenses were taken for a contractor. I find it hard to believe there were no expenses. But, I do believe that no personal attention was given. Anyone with self-employment income should be looking for some personal attention because that additional 7.65% in FICA hurts badly. If the accountant can't prep you on record keeping and bookkeeping, you might want to keep looking.
3. Long Term View: There are some accountants out there who I am convinced just want to make sure that the clients pays as little taxes and/or receives as big a refund back so they client will feel good about the work they paid for. But, the idea of being in business is to maximize profit. If a business is growing and the proprietor has cash flow, the proprietor should look for an accountant who is forward thinking. There is nothing worse than seeing equipment expensed to the max in year 1 and nothing left to expense when the tax bill is going through the roof. Of course, a person could always re-file, but if you are paying for a service, you should only have to pay once.
4. Added Value: One of the accounting publications I receive addresses the subject of keeping the client's overall financial picture in mind. An accountant that has more than your refund on his mind, but can help point you towards financial tools that might be of interest to you (Retirement accounts, Coverdells or 529 plans) will prove far more valuable. While it is fair to charge a fee for time, you probably don't want someone who is going to nickel and dime you, like a friend's former accountant.
5. Yashrut: You have probably seen or heard advertisements lately for certain tax services. One ad claims that this company finds a large amount of missed deductions on average for previous forms brought in. One should know that not every mistake is worth fixing and in tax $1000 might not equal $1000. Don't get taken for a ride if an accountant recommends amending a return. If you pay $200 to get back an additional $100, you are now $100 poorer. Know what to ask. In addition, I've unfortunately seen reconciliations, general ledgers, taxes, etc, where it is clear that numbers were pulled out of a hat. Financial professionals are not magicians. If something doesn't seem right, it may not be. And, if you don't recognize a number, ask.
I like varied projects, and the very, very part time freelancing I do provides me with quite a bit of variety. This week, I met with someone who needed to get his accounting system in order for his small business to have his taxes prepared. He showed me an old return. The others are sitting in the IRS office under audit. After seeing the current return, it was no mystery why he was flagged for audit. It was obvious that the former accountant pulled numbers out of a hat. Worse yet, the accountant didn't even use the correct forms. Nor did he advise this client of 3 years regarding what expenses were deductible and which were not. Unfortunately, this man was under the impression that buying himself a burger from McDonalds while on the job qualified as deduction, since he was self-employed (ouch!). Plus (I kid you not), the form was handwritten. I've worked with a handful of people who have small business and work as consultants and I'm always saddened when previous accountants have never given them proper guidance.
So, here are a few tips if you are choosing an accountant:
1. Software: This might seem obvious as it is 2008, but the accountant you go to for any service should use software. The handwritten return filled out by a CPA is not the 1st return I've seen where software was not used. Another case I saw was a CPA who typed up a 1040 and missed a basic tax credit. One look at the form told me software was not used because software automatically ties up certain loose ends. Another mistake I saw recently, a W-2 with the incorrect amounts paid to social security and medicare. If you are paying for a service, make sure the professional uses software.
2. Garbage In, Garbage Out: I have seen tax returns where no expenses were taken for a contractor. I find it hard to believe there were no expenses. But, I do believe that no personal attention was given. Anyone with self-employment income should be looking for some personal attention because that additional 7.65% in FICA hurts badly. If the accountant can't prep you on record keeping and bookkeeping, you might want to keep looking.
3. Long Term View: There are some accountants out there who I am convinced just want to make sure that the clients pays as little taxes and/or receives as big a refund back so they client will feel good about the work they paid for. But, the idea of being in business is to maximize profit. If a business is growing and the proprietor has cash flow, the proprietor should look for an accountant who is forward thinking. There is nothing worse than seeing equipment expensed to the max in year 1 and nothing left to expense when the tax bill is going through the roof. Of course, a person could always re-file, but if you are paying for a service, you should only have to pay once.
4. Added Value: One of the accounting publications I receive addresses the subject of keeping the client's overall financial picture in mind. An accountant that has more than your refund on his mind, but can help point you towards financial tools that might be of interest to you (Retirement accounts, Coverdells or 529 plans) will prove far more valuable. While it is fair to charge a fee for time, you probably don't want someone who is going to nickel and dime you, like a friend's former accountant.
5. Yashrut: You have probably seen or heard advertisements lately for certain tax services. One ad claims that this company finds a large amount of missed deductions on average for previous forms brought in. One should know that not every mistake is worth fixing and in tax $1000 might not equal $1000. Don't get taken for a ride if an accountant recommends amending a return. If you pay $200 to get back an additional $100, you are now $100 poorer. Know what to ask. In addition, I've unfortunately seen reconciliations, general ledgers, taxes, etc, where it is clear that numbers were pulled out of a hat. Financial professionals are not magicians. If something doesn't seem right, it may not be. And, if you don't recognize a number, ask.
Tuesday, February 19, 2008
Yeah or Nay? Financial Education in Orthodox Schools
There is an idea I've seen floated in various frum publications, at various blogs, and in the comments section of this blog that financial education should become a standard part of the curriculum in Orthodox Schools. ProfK, in the spirit of activism has asked her readers to "Send a note to your high school and tell them that you believe that a course in practical living is essential. Tell them you would have liked such a course and that you really needed such a course. Tell them that many shalom bayis problems center around money, and that a course in high school might cut these problems way down. Lay out some of the general areas that such a course should cover, like budgeting and what the real costs of living on credit are."
The trend follows that of the general public as more and more middle schools and high schools across the nation are introducing courses in personal finance into the curriculum. I believe most high school students in the US have always taken a course in Economics, micro and macro, but this type of course is centered around supply and demand graphs, not 1040's, budgets, credit, and financial tools. At my high school, Economics was a high school graduation requirement. Seeing some of the ridiculous complaint letters in the Yated regarding the price of camp and the price of pizza, I think an academic economics course would be a fine addition into an Orthodox Yeshiva/Day School education. Supply and demand theories, the drive for profit, etc, shouldn't be a mystery to the yeshivish consumer. I do not believe any of the local schools where I live offer a course in economics. I'd say that is a shame.
But back to the subject at hand, teaching personal finance in Day Schools, Yeshivas, and Bais Yaakovs. Yeah or Nay?
The arguments for yeah are obvious. Learning how to handle money (and the relevant halachot) is essentially for daily living. Not knowing the basics can lead to serious shalom bayit problems. I know of people who have gotten in over their head tax wise because of mistakes when filling out a W-4, or because they didn't know they were responsible for their own taxes as contractors. I certainly do not want my children to walk out of my own house without knowing some halachic basics, some tax basics, some budgeting basics, some savings basics, some investing basics, and some smart shopping basics. But, I have no fear they will leave my house ignorant because we make it a regular point to speak about choices. And as they get older we will start to involve them in banking and tax preparation.
But, as most of us have learned, running a fiscally sound home is really far less a function of knowledge and far more a function of BEHAVIOR. I can reconcile accounts, calculate amortization schedules, and engage in tax planning and savings (marginal tax rates, retirement, Coverdell IRAs, 529 Plans, depreciation schedules, stock options, 1031 exchanges, etc). I know how to invest in mutual funds, stocks, and bonds. But, ultimately, if I can't DISCIPLINE myself, my knowledge is only theoretical, and the unsavvy grandma who just puts her cash "under the matress" is going to live better when that rainy day comes. And, it will come.
Like I mentioned before, personal finance was *not* a feature of my own high school education. But, there is a moment that sticks out in my mind which makes me weary of allowing any teacher (or at least a teacher I haven't grilled to the bone and run a credit report on) to take over teaching about personal finance on my parental buck.
One day during a discussion about debt financing and the economy during my high school Economics class, the teacher veered off into the area of household finances. He mentioned that the guys would probably debt finance a big ticket item in the near future (we were seniors). The example he named was not a home, not a college education, not a first car. .. . . . .but an engagement ring (!). He had no problem with this rather expensive proposal, and seemed to consider this type of debt financing as a "reality" of life (note: outside of the frum world, gifts are generally regarded as the responsibility of the couple, not the parents).
I raised my hand, absolutely repulsed by the idea that a young man (future husband and father) would finance a ring, get married with the debt, and then stick the bill (now a shared responsibility) with his new wife, basically asking her to pay for her own ring! I raised my hand and said: "I'm sure as heck not going to pay for my own engagement ring. If he can't pay cash for a gift, he needs to buy something less expensive or not buy it at all. And, any guy who would surprise his wife with a proposal on credit, would be a surprise of him own." An entire argument ensued in class. The girls tended towards my sentiments. The guys were more evenly split.
My example should be demonstrative of what might happen if we left the teaching of personal finance in the hands of a school: an endorsement of an idea that we as parents might find really repulsive, ideas we would rather our children not internalize as "normal." Even if the curriculum is acceptable, discussion will ensue and personal opinions will be introduced and great weight could wrongly be placed on those unsound opinions; perhaps the idea that Retirement is Goyish, or that your parents want to give you soooooo much and will be more than happy to help you after marriage/if you get into debt/need babysitting, or that there is a mesorah for a chatan to get a watch upon engagement and naturally a young chatan should expect one, or that women dedicating themselves at least temporarily to homemaking is financially impossible, or that "everyone" uses credit--the idea my high school econ teacher was promoting. . . . and he was a good teacher when he stuck to supply and demand graphs).
And, unless a school were to start a personnel hunt for just the right personal finance teacher, I imagine that the teachers that you will get are the teachers you see in front of you right now. They might be great at teaching their subject, but is this a subject you want them to teach too? In some (but not all) cases, that would be enough to ask for a dispensation for my children, as this is a subject I'm more than happy to continue homeschooling.
I think we all know that the state of personal and communal finance isn't very rosy. I vote nay, at least until the state of personal and communal finance in the frum community changes enough that I am more trusting or those who could be teaching the subject and building the curriculum.
You have the potential to be your child's best personal finance teacher, so jump on the opportunities you find.
There is an idea I've seen floated in various frum publications, at various blogs, and in the comments section of this blog that financial education should become a standard part of the curriculum in Orthodox Schools. ProfK, in the spirit of activism has asked her readers to "Send a note to your high school and tell them that you believe that a course in practical living is essential. Tell them you would have liked such a course and that you really needed such a course. Tell them that many shalom bayis problems center around money, and that a course in high school might cut these problems way down. Lay out some of the general areas that such a course should cover, like budgeting and what the real costs of living on credit are."
The trend follows that of the general public as more and more middle schools and high schools across the nation are introducing courses in personal finance into the curriculum. I believe most high school students in the US have always taken a course in Economics, micro and macro, but this type of course is centered around supply and demand graphs, not 1040's, budgets, credit, and financial tools. At my high school, Economics was a high school graduation requirement. Seeing some of the ridiculous complaint letters in the Yated regarding the price of camp and the price of pizza, I think an academic economics course would be a fine addition into an Orthodox Yeshiva/Day School education. Supply and demand theories, the drive for profit, etc, shouldn't be a mystery to the yeshivish consumer. I do not believe any of the local schools where I live offer a course in economics. I'd say that is a shame.
But back to the subject at hand, teaching personal finance in Day Schools, Yeshivas, and Bais Yaakovs. Yeah or Nay?
The arguments for yeah are obvious. Learning how to handle money (and the relevant halachot) is essentially for daily living. Not knowing the basics can lead to serious shalom bayit problems. I know of people who have gotten in over their head tax wise because of mistakes when filling out a W-4, or because they didn't know they were responsible for their own taxes as contractors. I certainly do not want my children to walk out of my own house without knowing some halachic basics, some tax basics, some budgeting basics, some savings basics, some investing basics, and some smart shopping basics. But, I have no fear they will leave my house ignorant because we make it a regular point to speak about choices. And as they get older we will start to involve them in banking and tax preparation.
But, as most of us have learned, running a fiscally sound home is really far less a function of knowledge and far more a function of BEHAVIOR. I can reconcile accounts, calculate amortization schedules, and engage in tax planning and savings (marginal tax rates, retirement, Coverdell IRAs, 529 Plans, depreciation schedules, stock options, 1031 exchanges, etc). I know how to invest in mutual funds, stocks, and bonds. But, ultimately, if I can't DISCIPLINE myself, my knowledge is only theoretical, and the unsavvy grandma who just puts her cash "under the matress" is going to live better when that rainy day comes. And, it will come.
Like I mentioned before, personal finance was *not* a feature of my own high school education. But, there is a moment that sticks out in my mind which makes me weary of allowing any teacher (or at least a teacher I haven't grilled to the bone and run a credit report on) to take over teaching about personal finance on my parental buck.
One day during a discussion about debt financing and the economy during my high school Economics class, the teacher veered off into the area of household finances. He mentioned that the guys would probably debt finance a big ticket item in the near future (we were seniors). The example he named was not a home, not a college education, not a first car. .. . . . .but an engagement ring (!). He had no problem with this rather expensive proposal, and seemed to consider this type of debt financing as a "reality" of life (note: outside of the frum world, gifts are generally regarded as the responsibility of the couple, not the parents).
I raised my hand, absolutely repulsed by the idea that a young man (future husband and father) would finance a ring, get married with the debt, and then stick the bill (now a shared responsibility) with his new wife, basically asking her to pay for her own ring! I raised my hand and said: "I'm sure as heck not going to pay for my own engagement ring. If he can't pay cash for a gift, he needs to buy something less expensive or not buy it at all. And, any guy who would surprise his wife with a proposal on credit, would be a surprise of him own." An entire argument ensued in class. The girls tended towards my sentiments. The guys were more evenly split.
My example should be demonstrative of what might happen if we left the teaching of personal finance in the hands of a school: an endorsement of an idea that we as parents might find really repulsive, ideas we would rather our children not internalize as "normal." Even if the curriculum is acceptable, discussion will ensue and personal opinions will be introduced and great weight could wrongly be placed on those unsound opinions; perhaps the idea that Retirement is Goyish, or that your parents want to give you soooooo much and will be more than happy to help you after marriage/if you get into debt/need babysitting, or that there is a mesorah for a chatan to get a watch upon engagement and naturally a young chatan should expect one, or that women dedicating themselves at least temporarily to homemaking is financially impossible, or that "everyone" uses credit--the idea my high school econ teacher was promoting. . . . and he was a good teacher when he stuck to supply and demand graphs).
And, unless a school were to start a personnel hunt for just the right personal finance teacher, I imagine that the teachers that you will get are the teachers you see in front of you right now. They might be great at teaching their subject, but is this a subject you want them to teach too? In some (but not all) cases, that would be enough to ask for a dispensation for my children, as this is a subject I'm more than happy to continue homeschooling.
I think we all know that the state of personal and communal finance isn't very rosy. I vote nay, at least until the state of personal and communal finance in the frum community changes enough that I am more trusting or those who could be teaching the subject and building the curriculum.
You have the potential to be your child's best personal finance teacher, so jump on the opportunities you find.
Wednesday, January 09, 2008
Get-Rich Quick
No, this is not a post about how to get rich quick. Wrong time, wrongchannel blog. My blog looks at the basics of building a sound financial future (hard work, discipline, living below your means, saving in tax preferred ways, and learning to say no to yourself and others, and growing your income by saving).
Unfortunately, too many people are looking for a quick fix. And, when desperation sets in, it is even harder to face the music and opt for the tried and true way. While I support free press (and the Yated could use more of it!), I think the Yated made a blunder when they published a letter to the editor about a way to "get rich quick." The original letter writer wrote back saying she received 120 calls to join the company [whose name I will not print]. Not all letters to the editor need to be published, and when you see readers crying out week after week for "solutions" to their problem, I would say it is best not to distract them with get rich quick musing promising large amounts of extra money for minimal work in the comfort of your home. It would be far better to run a column on frugality, working to change the prevailing culture one matching yom tov dress at a time.
Fortunately, Rabbi Eli Teitelbaum formulated a letter expressing his dismay and had the proper words to convey the sentiment. I'm reprinting it here because I'm sure we all know someone involved in some sort of business venture or investment that they really should not be in, either because it won't pay off (or, worse yet, will cost them financial, to say nothing of the time wasted that could have been used more productively), or in the case of the latter (i.e. investments), they just should not be "investing" yet because they just don't have the proper financial footing to be able to do so in a smart way. And entering business ventures and investments in a state of desperation can also lead to, r"l, dishonesty.
I'm re-printing this worthwhile read below (emphasis added). Keep this page bookmarked and feel free to refer friends to this letter:
GET-RICH-QUICK” SCHEMES
Dear Editor,
Reader beware!In last week’s Readers Write column of the Yated, someone suggested a solution to the parnassa crisis by joining some MLM (Multi-Level Marketing) company making the latest rounds. Once again, I must warn all the readers that these MLMs have been tried since the time of Mesushelach and the only thing they will do for you is get you deeper into the quicksand and add to your pain and troubles.
I’m sure they’ll tell you that they are different than all the rest and provide you with names of people who are making millions. It’s time people realize that there is no treasure chest hidden at the end of the rainbow and the moon is not made out of cheese. There is no quick and easy way to riches unless you inherit it.
Many people were in Amway (also known as Scamway) for many years and never made the riches they were promised. The average monthly gross income for active distributors of Amway for January 1998 was $88. This was before expenses. Anyone who dangles a diamond-studded chain in front of your eyes is only trying to draw your attention. It’s like waving a red kerchief in front of a bull. We must never allow our greed and need for money to short-circuit our normal thinking process and common sense.
Unfortunately, many have lost both their time and life-savings by investing in these MLMs. For those who want to learn more about these so-called “get-rich-quick” schemes or MLMs, I suggest they read the book “Behind the Smoke and Mirrors,” by Ruth Carter, or “False Profits,” by Bob Fitzpatrick before investing their money.
While not all MLMs are the same, one should always consult his own accountant before investing his money and never rely on the advice of those who sell the product or franchise. It’s important that you find out what the average monthly gross income after expenses is for active distributors and what percentages of them have remained in the business for more than a year.
Don’t rely on the claims of a few who say they are making lots of money or tell you that you must work very hard at it in order to succeed. What they often fail to tell you is how much time you’ll actually have to put in, and how difficult it is to sell the product which is also being sold by many others, or how cheap you can buy a similar product in a local department store. More often than not, they will exaggerate the “miraculous” powers of their product, claiming that you can’t buy anything compatible anywhere else. One wonders why they don’t sell these miracle products in all stores.
Here’s a simple piece of advice to follow. If it sounds too good to be true, then stay away, don’t believe a word they say, and run the other way. Just because someone claims that it’s not an MLM doesn’t mean it’s not. If it looks like a duck and it quacks like a duck, then it’s a duck, no matter what anyone may call it! Not all that glitters is gold!
SincerelyRabbi Eli Teitelbaum
No, this is not a post about how to get rich quick. Wrong time, wrong
Unfortunately, too many people are looking for a quick fix. And, when desperation sets in, it is even harder to face the music and opt for the tried and true way. While I support free press (and the Yated could use more of it!), I think the Yated made a blunder when they published a letter to the editor about a way to "get rich quick." The original letter writer wrote back saying she received 120 calls to join the company [whose name I will not print]. Not all letters to the editor need to be published, and when you see readers crying out week after week for "solutions" to their problem, I would say it is best not to distract them with get rich quick musing promising large amounts of extra money for minimal work in the comfort of your home. It would be far better to run a column on frugality, working to change the prevailing culture one matching yom tov dress at a time.
Fortunately, Rabbi Eli Teitelbaum formulated a letter expressing his dismay and had the proper words to convey the sentiment. I'm reprinting it here because I'm sure we all know someone involved in some sort of business venture or investment that they really should not be in, either because it won't pay off (or, worse yet, will cost them financial, to say nothing of the time wasted that could have been used more productively), or in the case of the latter (i.e. investments), they just should not be "investing" yet because they just don't have the proper financial footing to be able to do so in a smart way. And entering business ventures and investments in a state of desperation can also lead to, r"l, dishonesty.
I'm re-printing this worthwhile read below (emphasis added). Keep this page bookmarked and feel free to refer friends to this letter:
GET-RICH-QUICK” SCHEMES
Dear Editor,
Reader beware!In last week’s Readers Write column of the Yated, someone suggested a solution to the parnassa crisis by joining some MLM (Multi-Level Marketing) company making the latest rounds. Once again, I must warn all the readers that these MLMs have been tried since the time of Mesushelach and the only thing they will do for you is get you deeper into the quicksand and add to your pain and troubles.
I’m sure they’ll tell you that they are different than all the rest and provide you with names of people who are making millions. It’s time people realize that there is no treasure chest hidden at the end of the rainbow and the moon is not made out of cheese. There is no quick and easy way to riches unless you inherit it.
Many people were in Amway (also known as Scamway) for many years and never made the riches they were promised. The average monthly gross income for active distributors of Amway for January 1998 was $88. This was before expenses. Anyone who dangles a diamond-studded chain in front of your eyes is only trying to draw your attention. It’s like waving a red kerchief in front of a bull. We must never allow our greed and need for money to short-circuit our normal thinking process and common sense.
Unfortunately, many have lost both their time and life-savings by investing in these MLMs. For those who want to learn more about these so-called “get-rich-quick” schemes or MLMs, I suggest they read the book “Behind the Smoke and Mirrors,” by Ruth Carter, or “False Profits,” by Bob Fitzpatrick before investing their money.
While not all MLMs are the same, one should always consult his own accountant before investing his money and never rely on the advice of those who sell the product or franchise. It’s important that you find out what the average monthly gross income after expenses is for active distributors and what percentages of them have remained in the business for more than a year.
Don’t rely on the claims of a few who say they are making lots of money or tell you that you must work very hard at it in order to succeed. What they often fail to tell you is how much time you’ll actually have to put in, and how difficult it is to sell the product which is also being sold by many others, or how cheap you can buy a similar product in a local department store. More often than not, they will exaggerate the “miraculous” powers of their product, claiming that you can’t buy anything compatible anywhere else. One wonders why they don’t sell these miracle products in all stores.
Here’s a simple piece of advice to follow. If it sounds too good to be true, then stay away, don’t believe a word they say, and run the other way. Just because someone claims that it’s not an MLM doesn’t mean it’s not. If it looks like a duck and it quacks like a duck, then it’s a duck, no matter what anyone may call it! Not all that glitters is gold!
SincerelyRabbi Eli Teitelbaum
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